Huake Holding Biology (HUAK) F-1/ARegistration statement (foreign) (amended)

As filed with the U.S. Securities and Exchange Commission on March 24, 2023

Registration No. 333-257530

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

AMENDMENT NO. 15 TO

FORM F-1

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

Huake Holding Biology Co., LTD

(Exact name of registrant as specified in its charter)

Shuhe Road, Tangchi Town

Shucheng County, Lu’An City, Anhui Province

People’s Republic of China 231343

+86 564 8242 222

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Puglisi& Associates

850 Library Avenue

Suite 204

Newark, Delaware 19711

(Name, address, including zip code, and telephone number, including area code, of agent for service)

With a Copy to:

Approximate date of commencement of proposed sale to the public: Promptly after the effective date of this registration statement.

The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the U.S. Securities and Exchange Commission, acting pursuant to such Section 8(a), may determine.

SUBJECT TO COMPLETION

PRELIMINARY PROSPECTUS DATED MARCH 24, 2023

1,250,000 Class A Ordinary Shares

Huake Holding Biology Co., LTD

This is an initial public offering of Huake Holding Biology Co., LTD’s Class A ordinary shares. We are offering on a firm commitment basis our Class A ordinary shares, par value $0.002 per share (the “Class A Ordinary Shares”). Prior to this offering, there has been no public market for our Class A Ordinary Shares. We expect that the initial public offering price will be in the range of $4 to $6 per Class A Ordinary Share. We have reserved the symbol “HUAK” for purposes of listing our Class A Ordinary Shares on the Nasdaq Capital Market (“Nasdaq”) and have applied to list our Class A Ordinary Shares on Nasdaq. At this time, Nasdaq has not yet approved our application to list our Class A Ordinary Shares. The closing of this offering is conditioned upon Nasdaq’s final approval of our listing application. We cannot assure you that our application will be approved, and if it is not approved by Nasdaq, we will not proceed with this offering.

On November 4, 2022, we filed an amended and restated memorandum and articles of association with the Cayman Islands Registrar of Companies to effectuate a share combination at a ratio of one-for-four (the “Share Combination”). After the Share Combination, our authorized share capital is $US 50,000 divided into (i) 2,500,000 preferred shares of par value of US$0.002 each, (ii) 17,500,000 Class A Ordinary Shares, par value of US$0.002 each, and (iii) 5,000,000 Class B ordinary shares, par value of US$0.002 each, (the “Class B Ordinary Shares”). Each Class A Ordinary Share is entitled to one (1) vote and each Class B Ordinary Share is entitled to twenty (20) votes on all matters subject to vote at our general meetings. Future transfers by holders of Class B Ordinary Shares will generally result in those shares converting to Class A Ordinary Shares, subject to limited exceptions, such as certain transfers effected for estate planning purposes. The conversion of Class B Ordinary Shares to Class A Ordinary Shares will have the effect, over time, of increasing the relative voting power of those holders of Class B Ordinary Shares who retain their shares in the long term. See “Description of Share Capital and Articles of Association—Ordinary Shares” starting on page 97 of this prospectus for more information. All of our issued and outstanding 2,469,500 Class B Ordinary Shares are beneficially held by Ms. Pingting Wang, our Chief Executive Officer and Chairperson of the Board, representing 95.13% of the voting power of our capital stock. After this offering, Ms. Wang will control shares representing more than 50% of the total voting power of our shares. As a result, this concentrated control may limit or preclude your ability to influence corporate matters for the foreseeable future, including the election of directors, amendments of our organizational documents, and any merger, consolidation, sale of all or substantially all of our assets, or other major corporate transaction requiring shareholder approval. In addition, this may prevent or discourage unsolicited acquisition proposals or offers for our capital stock that you may feel are in your best interest as one of our shareholders.

We are incorporated in the Cayman Islands. As a holding company with no material operations of our own, we conduct our operations in China through the variable interest entity, Anhui Aokai Fa Grease Technology Co., Ltd. (“Aokai Fa” or the “VIE”). This is an offering of the Class A Ordinary Shares of Huake Holding Biology Co., LTD, our Cayman Islands holding company. You are not directly investing in and may never hold equity interests of Aokai Fa, the consolidated VIE of Huake in China.

As a holding company, we may rely on dividends and other distributions on equity paid by our subsidiary in Hong Kong, Anhui Zhongruiyuan Biotechnology Co., Ltd. (“Zhongruiyuan” or the “WFOE”) and the VIE in China for our cash and financing requirements. If the WFOE or the VIE incur debt on their own behalf in the future, the instruments governing such debt may restrict their ability to pay dividends to us. In addition, the VIE is required to set aside at least 10% of its after-tax profits each year, if any, to fund a statutory reserve until such reserve reaches 50% of its registered capital. The VIE is also required to further set aside a portion of its after-tax profits to fund the employee welfare fund, although the amount to be set aside, if any, is determined at the discretion of its board of directors. Although the statutory reserves can be used, among other ways, to increase the registered capital and eliminate future losses in excess of retained earnings of the respective companies, the reserve funds are not distributable as cash dividends except in the event of liquidation. As of the date of this prospectus, the VIE has not remitted any services fees to WFOE. However, the VIE is obligated to pay a service fee equivalent to 100% of VIE’s net income after deduction of certain tax and operational expenses. As of the date of this prospectus, none of our subsidiaries or the VIE have made any dividends or distributions to us and we have not made any dividends or distributions to our shareholders. We currently intend to retain all available funds and future earnings, if any, for the operation and expansion of our business and do not anticipate declaring or paying any dividends in the foreseeable future. In the future, cash proceeds raised from overseas financing activities, including this offering, may be transferred by us to the VIE via capital contribution or shareholder loans, as the case may be. For more information, please see “Prospectus Summary - Dividend Distributions or Assets Transfer among the Holding Company, its Subsidiaries and the Consolidated VIE” starting on page 9 of this prospectus for more information.

We engage in the production and sales of camellia seed oil (“Camellia Oil”) products through the VIE in China. The research, farming, production and sales of Camellia Oil are categorized as “restricted” or “prohibited” from foreign investment under the “negative list” issued in 2020 by the National Development and Reform Commission and the Ministry of Commerce in China. The VIE, WFOE, and the VIE’s shareholders entered into the VIE Agreements; as a result of which, we are regarded as the primary beneficiary of Aokai Fa for accounting purposes, and, therefore, we are able to consolidate the financial results of Aokai Fa in our consolidated financial statements in accordance with U.S. GAAP. However, neither we nor our subsidiaries own any share in Aokai Fa, and the investors will not and may never directly hold equity interests in the VIE either. The VIE structure cannot completely replicate a foreign investment in China-based companies. Instead, the VIE structure provides contractual exposure to foreign investment in us. Because of our corporate structure, we are subject to risks due to uncertainty of the interpretation and the application of the PRC laws and regulations, including but not limited to limitation on foreign ownership of internet technology companies, and regulatory review of oversea listing of PRC companies through a special purpose vehicle, and the validity and enforcement of the VIE Agreements because they have not been tested in a court of law. We are also subject to the risks of uncertainty about any future actions of the PRC government in this regard. The VIE Agreements may not be effective in providing control over Aokai Fa. We may also subject to sanctions imposed by PRC regulatory agencies including Chinese Securities Regulatory Commission if we fail to comply with their rules and regulations.

Additionally, we are subject to certain legal and operational risks associated with the VIE’s operations in China. PRC laws and regulations governing our current business operations are sometimes vague and uncertain, and we are subject to the risks of uncertainty about any future actions of the PRC government in this regard that could disallow the VIE structure, which may result in a material change in the VIE’s operations, significant depreciation of the value of our Class A Ordinary Shares, or a complete hindrance of our ability to offer or continue to offer our securities to investors and cause the value of such securities to significantly decline or be worthless. Recently, the PRC government initiated a series of regulatory actions and statements to regulate business operations in China with little advance notice, including cracking down on illegal activities in the securities market, enhancing supervision over China-based companies listed overseas using variable interest entity structure, adopting new measures to extend the scope of cybersecurity reviews, and expanding the efforts in anti-monopoly enforcement. We, through the VIE in China, engages in the production and sale of Camellia Oil, which do not involve operation of critical information infrastructure.

On February 17, 2023, the CSRC published the Tentative Measures for Administration of the Overseas Issuance and Listing of Securities by Domestic Enterprises (the “Tentative Measures”), which will become effective on March 31, 2023. The Tentative Measures lay out the filing regulation arrangement for both direct and indirect overseas listing, and clarify the determination criteria for indirect overseas listing in overseas markets. Among other things, if a domestic enterprise intends to indirectly offer and list securities in an overseas market, the issuer shall designate a major domestic operating entity responsible for all filing procedures with the CSRC, and such filing obligation shall be completed within three working days after the overseas listing application is submitted. According to Relevant Officials of the CSRC Answered Reporter Questions (“CSRC Answers”), starting from March 31, 2023, enterprises that have been listed overseas or satisfy all of the following conditions shall be deemed as “Grandfathered Issuers” and are not required to complete the overseas listing filing immediately, but shall complete filings as required if they conduct refinancing or are involved in other circumstances that require filing with the CSRC: (i) the application for indirect overseas offering or listing shall have been approved by the relevant overseas regulatory authority or stock exchange prior to March 31, 2023 (as the SEC does not approve or disapprove of an offering, this requirement is interpreted to be the SEC’s declaration of the registration statement to be effective with respect to this offering), (ii) the enterprise is not required to reapply for the approval of the relevant overseas regulatory authority or stock exchange, and (iii) such overseas securities offering or listing shall be completed before September 30, 2023. Starting from March 31, 2023, domestic enterprises that have submitted valid applications for overseas offerings and listing but have not obtained the approval from relevant overseas regulatory authority or overseas stock exchange shall complete filings with the CSRC prior to their overseas offering and listings. On February 24, 2023, the CSRC, Ministry of Finance of the PRC, National Administration of State Secrets Protection and National Archives Administration of China jointly issued the Provisions on Strengthening the Confidentiality and Archive Management Work Relating to the Overseas Securities Offering and Listing, or the Confidentiality Provisions, which will come into effect on March 31, 2023 with the Tentative Measures. The Confidentiality Provisions require that, among other things, (a) a domestic company that plans to, either directly or through its overseas listed entity, publicly disclose or provide to relevant individuals or entities including securities companies, securities service providers and overseas regulators, any documents and materials that contain state secrets or working secrets of government agencies, shall first obtain approval from competent authorities according to law, and file with the secrecy administrative department at the same level; and (b) domestic company that plans to, either directly or through its overseas listed entity, publicly disclose or provide to relevant individuals and entities including securities companies, securities service providers and overseas regulators, any other documents and materials that, if leaked, will be detrimental to national security or public interest, shall strictly fulfil relevant procedures stipulated by applicable national regulations. As advised by our PRC counsel, Beijing Docvit Law Firm, if our registration statement on the Form F-1 is not declared to be effective by the SEC prior to March 31, 2023, we will be required to comply with the filing requirements under the Tentative Measures in connection with this offering. As of the date of this prospectus, our PRC counsel does not expect there to be any material legal obstacle for us to comply with the filing requirements under the Tentative Measures. Regardless of whether this offering will be subject to any filing requirements with the CSRC under the Tentative Measures, any future securities offerings and listings outside of mainland China by our Company, including but not limited to follow on offerings, secondary listings, and going private transactions, will be subject to the filing requirements with the CSRC under the Tentative Measures, and we cannot assure you that we will be able to comply with such filing requirements in a timely manner, or at all.

Pursuant to the PRC Cybersecurity Law, which was promulgated by the Standing Committee of the National People’s Congress on November 7, 2016 and took effect on June 1, 2017, personal information and important data collected and generated by a critical information infrastructure operator in the course of its operations in China must be stored in China, and if a critical information infrastructure operator purchases internet products and services that affects or may affect national security, it should be subject to cybersecurity review by the Cyberspace Administration of China (“CAC”). Due to the lack of further interpretations, the exact scope of “critical information infrastructure operator” remains unclear. On December 28, 2021, the CAC and other relevant PRC governmental authorities jointly promulgated the Cybersecurity Review Measures (the “new Cybersecurity Review Measures”) to replace the original Cybersecurity Review Measures. The new Cybersecurity Review Measures took effect on February 15, 2022. Pursuant to the new Cybersecurity Review Measures, if critical information infrastructure operators purchase network products and services, or network platform operators conduct data processing activities that affect or may affect national security, they will be subject to cybersecurity review. On November 14, 2021, CAC published the Administration Measures for Cyber Data Security (Draft for Public Comments), or the “Cyber Data Security Measures (Draft)”, which require cyberspace operators with personal information of more than 1 million users who want to list abroad to file a cybersecurity review with the Office of Cybersecurity Review. The cybersecurity review will evaluate, among others, the risk of critical information infrastructure, core data, important data, or a large amount of personal information being influenced, controlled or maliciously used by foreign governments and risk of network data security after going public overseas. As advised by our PRC counsel, Beijing Docvit Law Firm, we do not expect to be subject to cybersecurity review, because: (i) our products are offered not directly to individual consumers but through our distributors; (ii) we do not possess a large amount of personal information in our business operations; and (iii) data processed in our business does not have a bearing on national security and thus may not be classified as core or important data by the authorities. Since these statements and regulatory actions are new, it is highly uncertain how soon legislative or administrative regulation making bodies will respond and what existing or new laws or regulations or detailed implementations and interpretations will be modified or promulgated, if any, and the potential impact such modified or new laws and regulations will have on our daily business operation, the ability to accept foreign investments and list on an U.S. exchange. See “Risk Factors – Risks Related to Doing Business in the PRC” starting on page 18 of this prospectus and “Risk Factors – Risks Related to Our Corporate Structure” starting on page 36 of this prospectus for more information.

Furthermore, as an auditor of companies that are registered with the SEC and publicly traded in the United States and a firm registered with the PCAOB, our auditor is located in Hackensack, New Jersey and is required under the laws of the United States to undergo regular inspections by the U.S. Public Company Accounting Oversight Board (“PCAOB”) to assess their compliance with the laws of the United States and professional standards. Although we operate through Aokai Fa in mainland China, a jurisdiction where the PCAOB is currently unable to conduct inspections without the approval of the Chinese government authorities, our auditor is currently inspected fully by the PCAOB. Inspections of other auditors conducted by the PCAOB outside mainland China have at times identified deficiencies in those auditors’ audit procedures and quality control procedures, which may be addressed as part of the inspection process to improve future audit quality.

Even though our auditor is based in Hackensack, New Jersey and under full inspection by the PCAOB and it is not currently subject to the determinations announced by the PCAOB on December 16, 2021, if  any PRC law relating to the access of the PCAOB to auditor files were to apply to a company such as Aokai Fa or its auditor, the PCAOB may be unable to fully inspect our auditor, which may result in our securities being delisted or prohibited from being traded “over-the-counter” pursuant to the Holding Foreign Companies Accountable Act (the “HFCA Act”) and materially and adversely affect the value and/or liquidity of your investment.  On December 29, 2022, legislation entitled “Consolidated Appropriations Act, 2023” (the “Consolidated Appropriations Act”) was signed into law by President Biden, which, among other things, amended HFCA Act by requiring the SEC to prohibit an issuer’s securities from trading on any U.S. stock exchanges if its auditor is not subject to PCAOB inspections for two consecutive years instead of three, thus reducing the time period for triggering the prohibition on trading. Furthermore, our auditor is not among the auditor firms listed on an HFCA Act Determination List, which includes all of the auditor firms that the PCAOB is not able to inspect. There are risks and uncertainties which we cannot foresee for the time being, and rules and regulations in the PRC can change quickly with little or no advance notice. The PRC government may intervene or influence Aokai Fa’s future operations in the PRC at any time, or may exert more control over offerings conducted overseas and/or foreign investment in companies like us. In the event it is later determined that the PCAOB is unable to inspect or investigate completely our auditor, then such lack of inspection could cause trading in our securities to be prohibited under the HFCA Act, and ultimately result in a determination by a securities exchange to delist our securities.

On August 26, 2022, the PCAOB signed SOP Agreements with the CSRC and China’s Ministry of Finance. The SOP Agreements established a specific, accountable framework to make possible complete inspections and investigations by the PCAOB of audit firms based in mainland China and Hong Kong, as required under U.S. law. However, if the PCAOB continues to be prohibited from conducting complete inspections and investigations of PCAOB-registered public accounting firms in mainland China and Hong Kong, the PCAOB is likely to determine by the end of 2022 that positions taken by authorities in the PRC obstructed the its ability to inspect and investigate registered public accounting firms in mainland China and Hong Kong completely, then the companies audited by those registered public accounting firms would be subject to a trading prohibition on U.S. markets pursuant to the HFCA Act. A termination in the trading of our securities or any restriction on the trading in our securities would be expected to have a negative impact on us as well as on the value of our securities. See “Risk Factors—Risks Related to Doing Business in the PRC” for a detailed description of risks related to the PRC starting on page 18 of this prospectus for more information.

Ms. Pingting Wang, our Chairperson of the Board of Directors and Chief Executive Officer, is currently the beneficial owner of 2,469,500 Class B Ordinary Shares, representing 95.13% of the total voting power, and has the controlling interest of our Company. Upon the closing of this offering, Ms. Wang will own approximately 92.89% of our total voting power and we will continue to be a “controlled company” under the corporate governance standards for NASDAQ listed companies and for so long as we remain a controlled company under this definition, we are eligible to utilize certain exemptions from the corporate governance requirements of the NASDAQ Stock Market.

We are an “emerging growth company” as defined under the federal securities laws and will be subject to reduced public company reporting requirements. Please read the disclosures beginning on page 12 of this prospectus for more information.

Investing in our Class A Ordinary Shares involves a high degree of risk, including the risk of losing your entire investment. See “Risk Factors” beginning on page 18 to read about factors you should consider before buying our Class A Ordinary Shares. 

This offering is being conducted on a firm commitment basis. The underwriters are obligated to take and pay for all of the shares if any such shares are taken. We have granted the underwriters an option for a period of 45 days after the closing of this offering to purchase up to 15% of the total number of our Class A Ordinary Shares to be offered by us pursuant to this offering (excluding shares subject to this option), solely for the purpose of covering overallotments, at the initial public offering price less the underwriting discount. If the over-allotment option is exercised in full, the total underwriting discounts payable will be $539,063, and the total proceeds to us, after underwriting discounts and expenses but before offering expenses, will be $6,648,437. If we complete this offering, net proceeds will be delivered to our company on the closing date. Except as otherwise noted, all information in this prospectus reflects and assumes no exercise of the over-allotment option.

One of the conditions to our obligation to sell any securities through the underwriters is that, upon the closing of the offering, the Class A Ordinary Shares would qualify for listing on Nasdaq.

As used in this prospectus, “we”, “us”, or the “Company” refers to Huake Holding Biology Co., LTD, the Cayman Islands holding company, its direct and indirect subsidiaries and the VIE in China, as the case may be, and, in the context of describing our operations and consolidated financial information, the VIE in China. 

Neither the U.S. Securities and Exchange Commission nor any state securities commission nor any other regulatory body has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

Sole Book-Running Manager

EF HUTTON

division of Benchmark Investments, LLC

Prospectus dated      , 2023

TABLE OF CONTENTS

You should rely only on the information contained in this prospectus or in any related free-writing prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus. We are offering to sell, and seeking offers to buy, the ordinary shares only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is current only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of the ordinary shares.

Until          , 2023 (the 25^th day after the date of this prospectus), all dealers that buy, sell or trade ordinary shares, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the obligation of dealers to deliver a prospectus when acting as an underwriter and with respect to their unsold allotments or subscriptions.

About this Prospectus

We and the underwriters have not authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses prepared by us or on our behalf or to which we have referred you. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the Class A Ordinary Shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. We are not making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted or where the person making the offer or sale is not qualified to do so or to any person to whom it is not permitted to make such offer or sale. For the avoidance of doubt, no offer or invitation to subscribe for Class A Ordinary Shares is made to the public in the Cayman Islands. The information contained in this prospectus is current only as of the date on the front cover of the prospectus. Our business, financial condition, results of operations and prospects may have changed since that date.

Other Pertinent Information

Unless otherwise indicated or the context requires otherwise, references in this prospectus to:

Our business is conducted by Aokai Fa, the VIE in the PRC, using RMB, the currency of China. Our consolidated financial statements are presented in United States dollars. In this prospectus, we refer to assets, obligations, commitments, and liabilities in our consolidated financial statements in United States dollars. These dollar references are based on the exchange rate of RMB to United States dollars, determined as of a specific date or for a specific period. Changes in the exchange rate will affect the amount of our obligations and the value of our assets in terms of United States dollars which may result in an increase or decrease in the amount of our obligations (expressed in dollars) and the value of our assets, including accounts receivable (expressed in dollars).

RISK FACTORS

An investment in our Class A Ordinary Shares involves a high degree of risk. Before deciding whether to invest in our Class A Ordinary Shares, you should consider carefully the risks described below, together with all of the other information set forth in this prospectus, including the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operation” and our consolidated financial statements and related notes. If any of these risks actually occurs, our business, financial condition, results of operations or cash flow could be materially and adversely affected, which could cause the trading price of our Class A Ordinary Shares to decline, resulting in a loss of all or part of your investment. The risks described below and in the sections referenced above are not the only ones that we face. Additional risks not presently known to us or that we currently deem immaterial may also affect our business. You should only consider investing in our Class A Ordinary Shares if you can bear the risk of loss of your entire investment.

Risks Related to Doing Business in the PRC

Our ordinary shares may be delisted under the HFCA Act if the PCAOB is unable to inspect our auditors. The delisting of our ordinary shares, or the threat of their being delisted, may materially and adversely affect the value of your investment. On December 29, 2022, the Consolidated Appropriations Act was signed into law by President Biden, which, among other things, amended HFCA Act by by requiring the SEC to prohibit an issuer’s securities from trading on any U.S. stock exchanges if its auditor is not subject to PCAOB inspections for two consecutive years instead of three, thus reducing the time period for triggering the prohibition on trading. 

As part of a continued regulatory focus in the United States on access to audit and other information currently protected by national law, in particular China’s, in June 2019, a bipartisan group of lawmakers introduced bills in both houses of the U.S. Congress which, if passed, would require the SEC to maintain a list of issuers for which PCAOB is not able to inspect or investigate the audit work performed by a foreign public accounting firm completely. The proposed Ensuring Quality Information and Transparency for Abroad-Based Listings on our Exchanges (“EQUITABLE”) Act prescribes increased disclosure requirements for these issuers and, beginning in 2025, the delisting from U.S. national securities exchanges such as the Nasdaq of issuers included on the SEC’s list for three consecutive years. It is unclear if this proposed legislation will be enacted. Furthermore, there have been recent deliberations within the U.S. government regarding potentially limiting or restricting China-based companies from accessing U.S. capital markets. On May 20, 2020, the U.S. Senate passed the HFCA Act, which includes requirements for the SEC to identify issuers whose audit work is performed by auditors that the PCAOB is unable to inspect or investigate completely because of a restriction imposed by a non-U.S. authority in the auditor’s local jurisdiction. The U.S. House of Representatives passed the HFCA Act on December 2, 2020, and the HFCA Act was signed into law on December 18, 2020. Additionally, in July 2020, the U.S. President’s Working Group on Financial Markets issued recommendations for actions that can be taken by the executive branch, the SEC, the PCAOB or other federal agencies and department with respect to Chinese companies listed on U.S. stock exchanges and their audit firms, in an effort to protect investors in the United States. In response, on November 23, 2020, the SEC issued guidance highlighting certain risks (and their implications to U.S. investors) associated with investments in China-based issuers and summarizing enhanced disclosures the SEC recommends China-based issuers make regarding such risks. On March 24, 2021, the SEC adopted interim final rules relating to the implementation of certain disclosure and documentation requirements of the HFCA Act. We will be required to comply with these rules if the SEC identifies us as having a “non-inspection” year (as defined in the interim final rules) under a process to be subsequently established by the SEC. The SEC is assessing how to implement other requirements of the HFCA Act, including the listing and trading prohibition requirements described above. Under the HFCA Act, our securities may be prohibited from trading on the Nasdaq or other U.S. stock exchanges if our auditor is not inspected by the PCAOB for three consecutive years, and this ultimately could result in our Ordinary Shares being delisted.

On September 22, 2021, the PCAOB adopted a final rule implementing the HFCAA, which provides a framework for the PCAOB to use when determining, as contemplated under the HFCAA, whether the PCAOB is unable to inspect or investigate completely registered public accounting firms located in a foreign jurisdiction because of a position taken by one or more authorities in that jurisdiction.

On December 2, 2021, the SEC issued amendments to finalize rules implementing the submission and disclosure requirements in the HFCA Act. The rules apply to registrants that the SEC identifies as having filed an annual report with an audit report issued by a registered public accounting firm that is located in a foreign jurisdiction and that PCAOB is unable to inspect or investigate completely because of a position taken by an authority in foreign jurisdictions. On December 16, 2021, SEC announced that the PCAOB designated China and Hong Kong as the jurisdictions where the PCAOB is not allowed to conduct full and complete audit inspections as mandated under the HFCA Act.

On December 29, 2022, the Consolidated Appropriations Act was signed into law by President Biden, which, among other things, amended the HFCA Act by requiring the SEC to prohibit an issuer’s securities from trading on any U.S. stock exchanges if its auditor is not subject to PCAOB inspections for two consecutive years instead of three, thus reducing the time period for triggering the prohibition on trading.

Our independent registered public accounting firm issued an audit opinion on the financial statements incorporated by reference in this prospectus filed with the SEC. As an auditor of companies that are traded publicly in the United States and a firm registered with the PCAOB, our auditor is required by the laws of the United States to undergo regular inspections by the PCAOB. Our auditor is located in Hackensack, New Jersey, and has been inspected by the PCAOB on a regular basis with the last inspection in August 2020. Furthermore, our auditor is not among the auditor firms listed on an HFCAA Determination List, which includes all of the auditor firms that the PCAOB is not able to inspect. Recent developments with respect to audits of companies of which the major operations are in China, such as us, create uncertainty about the ability of our auditor to fully cooperate with the PCAOB’s request for audit work papers without the approval of the Chinese authorities. On August 26, 2022, the PCAOB signed SOP Agreements with the CSRC, and China’s Ministry of Finance. The SOP Agreements established a specific, accountable framework to make possible complete inspections and investigations by the PCAOB of audit firms based in mainland China and Hong Kong, as required under U.S. law. However, if the PCAOB continues to be prohibited from conducting complete inspections and investigations of PCAOB-registered public accounting firms in mainland China, there and Hong Kong, the PCAOB is likely to determine by the end of 2022 that positions taken by authorities in the PRC obstructed the its ability to inspect and investigate registered public accounting firms in mainland China and Hong Kong completely, then companies audited by those firms would be subject to a trading prohibition on U.S. markets pursuant to the HFCA Act. As a result, our investors may be deprived of the benefits of PCAOB’s oversight of our auditors through such inspections.

Should the PCAOB be unable to fully conduct inspections of our auditors’ work papers due to a position taken by one or more authorities in the foreign jurisdiction, it will make it more difficult to evaluate the effectiveness of our auditor’s audit procedures or quality control procedures. Investors may consequently lose confidence in our reported financial information and procedures and the quality of our financial statements, which would adversely affect the market price of our Class A Ordinary Shares.

The recent joint statement by the SEC, proposed rule changes submitted by Nasdaq, and an act passed by the U.S. Senate and the U.S. House of Representatives, all call for additional and more stringent criteria to be applied to emerging market companies. These developments could add uncertainties to our offering, business operations, share price and reputation.

U.S. public companies that have substantially all of their operations in China have been the subject of intense scrutiny, criticism and negative publicity by investors, financial commentators and regulatory agencies, such as the SEC. Much of the scrutiny, criticism and negative publicity has centered on financial and accounting irregularities and mistakes, a lack of effective internal controls over financial accounting, inadequate corporate governance policies or a lack of adherence thereto and, in many cases, allegations of fraud.

On December 7, 2018, the SEC and the PCAOB issued a joint statement highlighting continued challenges faced by the U.S. regulators in their oversight of financial statement audits of U.S.-listed companies with significant operations in China. On April 21, 2020, SEC Chairman Jay Clayton and PCAOB Chairman William D. Duhnke III, along with other senior SEC staff, released a joint statement highlighting the risks associated with investing in companies based in or have substantial operations in emerging markets including China, reiterating past SEC and PCAOB statements on matters including the difficulty associated with inspecting accounting firms and audit work papers in China and higher risks of fraud in emerging markets and the difficulty of bringing and enforcing SEC, Department of Justice and other U.S. regulatory actions, including in instances of fraud, in emerging markets generally.

On May 20, 2020, the U.S. Senate passed the HFCA Act requiring a foreign company to certify it is not owned or controlled by a foreign government if the PCAOB is unable to audit specified reports because the company uses a foreign auditor not subject to PCAOB inspection. If the PCAOB is unable to inspect the company’s auditors for three consecutive years, the issuer’s securities are prohibited to trade on a national exchange. On December 2, 2020, the U.S. House of Representatives approved the HFCA Act.

On May 21, 2021, Nasdaq filed three proposals with the SEC to (i) apply minimum offering size requirement for companies primarily operating in a “Restrictive Market”, (ii) prohibit Restrictive Market companies from directly listing on Nasdaq Capital Market, and only permit them to list on Nasdaq Global Select or Nasdaq Global Market in connection with a direct listing and (iii) apply additional and more stringent criteria to an applicant or listed company based on the qualifications of the company’s auditors.

As a result of these scrutiny, criticism and negative publicity, the publicly traded stock of many U.S. listed Chinese companies sharply decreased in value and, in some cases, has become virtually worthless. Many of these companies are now subject to shareholder lawsuits and SEC enforcement actions and are conducting internal and external investigations into the allegations. It is not clear what effect this sector-wide scrutiny, criticism and negative publicity will have on us, our offering, business and our share price. If we become the subject of any unfavorable allegations, whether such allegations are proven to be true or untrue, we will have to expend significant resources to investigate such allegations and/or defend our company. This situation will be costly and time consuming and distract our management from developing our growth. If such allegations are not proven to be groundless, we and our business operations will be severely affected and you could sustain a significant decline in the value of our share.

Nasdaq may apply additional and more stringent criteria for our initial and continued listing because we plan to have a small public offering and our insiders will hold a large portion of our listed securities.

Nasdaq Listing Rule 5101 provides Nasdaq with broad discretionary authority over the initial and continued listing of securities in Nasdaq and Nasdaq may use such discretion to deny initial listing, apply additional or more stringent criteria for the initial or continued listing of particular securities, or suspend or delist particular securities based on any event, condition, or circumstance that exists or occurs that makes initial or continued listing of the securities on Nasdaq inadvisable or unwarranted in the opinion of Nasdaq, even though the securities meet all enumerated criteria for initial or continued listing on Nasdaq. In addition, Nasdaq has used its discretion to deny initial or continued listing or to apply additional and more stringent criteria in the instances, including but not limited to: (i) where the company engaged an auditor that has not been subject to an inspection by PCAOB, an auditor that PCAOB cannot inspect, or an auditor that has not demonstrated sufficient resources, geographic reach, or experience to adequately perform the company’s audit; (ii) where the company planned a small public offering, which would result in insiders holding a large portion of the company’s listed securities. Nasdaq was concerned that the offering size was insufficient to establish the company’s initial valuation, and there would not be sufficient liquidity to support a public market for the company; and (iii) where the company did not demonstrate sufficient nexus to the U.S. capital market, including having no U.S. shareholders, operations, or members of the board of directors or management. Our initial public offering will be relatively small and the insiders of our Company will hold a large portion of the company’s listed securities following the consummation of the offering. Therefore, we may be subject to the additional and more stringent criteria of Nasdaq for our initial and continued listing, which might cause delay or even denial of our listing application.

The uncertainties with respect to the Chinese legal system, including uncertainties regarding the enforcement of laws, and sudden or unexpected changes in laws and regulations in China with little advance notice could adversely affect us and limit the legal protections available to you and us.

There are substantial uncertainties regarding the interpretation and application of PRC laws and regulations including, but not limited to, the laws and regulations governing our business and the enforcement and performance of our arrangements with customers in certain circumstances. The laws and regulations are sometimes vague and may be subject to future changes, and their official interpretation and enforcement could be unpredictable, with little advance notice. The effectiveness and interpretation of newly enacted laws or regulations, including amendments to existing laws and regulations, may be delayed, and our business may be affected if we rely on laws and regulations which are subsequently adopted or interpreted in a manner different from our current understanding of these laws and regulations. New laws and regulations that affect existing and proposed future businesses may also be applied retroactively. We cannot predict what effect the interpretation of existing or new PRC laws or regulations may have on our business.

The PRC legal system is a civil law system based on written statutes. Unlike the common law system, prior court decisions under the civil law system may be cited for reference but have limited precedential value.

In 1979, the PRC government began to promulgate a comprehensive system of laws and regulations governing economic matters in general. The overall effect of legislation over the past four decades has significantly enhanced the protections afforded to various forms of foreign investments in China. However, China has not developed a fully integrated legal system, and recently enacted laws and regulations may not sufficiently cover all aspects of economic activities in China. In particular, the PRC legal system is based on written statutes and prior court decisions have limited value as precedents. Since these laws and regulations are relatively new and the PRC legal system continues to rapidly evolve, the interpretations of many laws, regulations, and rules may not be uniform and enforcement of these laws, regulations and rules involves uncertainties. These uncertainties may affect our judgment on the relevance of legal requirements and our ability to enforce our contractual rights or tort claims. In addition, the regulatory uncertainties may be exploited through unmerited or frivolous legal actions or threats in attempts to extract payments or benefits from us. Furthermore, the PRC legal system is based in part on government policies and internal rules, some of which are not published on a timely basis or at all and may have a retroactive effect. As a result, we may not be aware of our violation of any of these policies and rules until sometime after the violation. In addition, any administrative and court proceedings in China may be protracted, resulting in substantial costs and diversion of resources and management attention.

Changes in China’s economic, political, or social conditions could have a material adverse effect on our business and operations.

Substantially all of our assets and operations are currently located in China. Accordingly, our business, financial condition, results of operations, and prospects may be influenced to a significant degree by political, economic, and social conditions in China generally. The Chinese economy differs from the economies of most developed countries in many respects, including the level of government involvement, level of development, growth rate, control of foreign exchange, and allocation of resources. Although the Chinese government has implemented measures emphasizing the utilization of market forces for economic reform, including the reduction of state ownership of productive assets and the establishment of improved corporate governance in business enterprises, a substantial portion of productive assets in China is still owned by the government. In addition, the Chinese government continues to play a significant role in regulating industry development by imposing industrial policies. The Chinese government also exercises significant control over China’s economic growth by allocating resources, controlling payment of foreign currency-denominated obligations, setting monetary policy, and providing preferential treatment to particular industries or companies.

While the Chinese economy has experienced significant growth over the past decades, growth has been uneven, both geographically and among various sectors of the economy. Any adverse changes in economic conditions in China, in the policies of the Chinese government, or in the laws and regulations in China could have a material adverse effect on the overall economic growth of China. Such developments could adversely affect our business and operating results, reduce demand for our services, and weaken our competitive position. The Chinese government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures may benefit the overall Chinese economy, but may have a negative effect on us. For example, our financial condition and results of operations may be adversely affected by government control over capital investments or changes in tax regulations. In addition, in the past the Chinese government has implemented certain measures, including interest rate adjustments, to control the pace of economic growth. These measures may cause decreased economic activities in China, which may adversely affect our business and operating results.

Uncertainties in the interpretation and enforcement of PRC laws and regulations could limit the legal protection available to you and us.

The PRC legal system is based on written statutes. Unlike common law systems, it is a system in which legal cases have limited value as precedents. In the late 1970s, the PRC government began to promulgate a comprehensive system of laws and regulations governing economic matters in general. The legislation over the past three decades has significantly increased the protection afforded to various forms of foreign or private-sector investment in China. Our PRC subsidiary and the VIE are subject to various PRC laws and regulations generally applicable to companies in China. Since these laws and regulations are relatively new and the PRC legal system continues to rapidly evolve, however, the interpretations of many laws, regulations, and rules are not always uniform and enforcement of these laws, regulations, and rules involve uncertainties.

On July 6, 2021, the General Office of the Communist Party of China Central Committee and the General Office of the State Council jointly issued a document to crack down on illegal activities in the securities market and promote the high-quality development of the capital market, which, among other things, requires the relevant governmental authorities to strengthen cross-border oversight of law-enforcement and judicial cooperation, to enhance supervision over China-based companies listed overseas, and to establish and improve the system of extraterritorial application of the PRC securities laws. Since this document is relatively new, uncertainties still exist in relation to how soon legislative or administrative regulation making bodies will respond and what existing or new laws or regulations or detailed implementations and interpretations will be modified or promulgated, if any, and the potential impact such modified or new laws and regulations will have on companies like us.

From time to time, we may have to resort to administrative and court proceedings to enforce our legal rights. Since PRC administrative and court authorities have significant discretion in interpreting and implementing statutory and contractual terms, however, it may be more difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy in the PRC legal system than in more developed legal systems. Furthermore, the PRC legal system is based in part on government policies and internal rules (some of which are not published in a timely manner or at all) that may have retroactive effect. As a result, we may not be aware of our violation of these policies and rules until sometime after the violation. Such uncertainties, including uncertainties over the scope and effect of our contractual, property (including intellectual property) and procedural rights, and any failure to respond to changes in the regulatory environment in China could materially and adversely affect our business and impede our ability to continue our operations.

Increases in labor costs in the PRC may adversely affect our business and our profitability.

China’s economy has experienced increases in labor costs in recent years. China’s overall economy and the average wage in China are expected to continue to grow. The average wage level for our employees has also increased in recent years. We expect that our labor costs, including wages and employee benefits, will continue to increase. Unless we are able to pass on these increased labor costs to our customers by increasing prices for our products or services, our profitability and results of operations may be materially and adversely affected.

In addition, we have been subject to stricter regulatory requirements in terms of entering into labor contracts with our employees and paying various statutory employee benefits, including pensions, housing fund, medical insurance, work-related injury insurance, unemployment insurance, and maternity insurance to designated government agencies for the benefit of our employees. Pursuant to the PRC Labor Contract Law, or the “Labor Contract Law,” that became effective in January 2008 and its amendments that became effective in July 2013 and its implementing rules that became effective in September 2008, employers are subject to stricter requirements in terms of signing labor contracts, minimum wages, paying remuneration, determining the term of employees’ probation, and unilaterally terminating labor contracts. In the event that we decide to terminate some of our employees or otherwise change our employment or labor practices, the Labor Contract Law and its implementation rules may limit our ability to effect those changes in a desirable or cost-effective manner, which could adversely affect our business and results of operations.

As the interpretation and implementation of labor-related laws and regulations are still evolving, we cannot assure you that our employment practice does not and will not violate labor-related laws and regulations in China, which may subject us to labor disputes or government investigations. If we are deemed to have violated relevant labor laws and regulations, we could be required to provide additional compensation to our employees and our business, financial condition and results of operations could be materially and adversely affected.

Our business may be materially and adversely affected if the VIE declare bankruptcy or become subject to a dissolution or liquidation proceeding.

The PRC Enterprise Bankruptcy Law provides that an enterprise may be liquidated if the enterprise fails to settle its debts as and when they fall due and if the enterprise’s assets are, or are demonstrably, insufficient to clear such debts.

The VIE holds certain assets that are important to our business operations. If any of the VIE undergoes a voluntary or involuntary liquidation proceeding, unrelated third-party creditors may claim rights to some or all of these assets, thereby hindering our ability to operate our business, which could materially and adversely affect our business, financial condition, and results of operations.

Fluctuations in exchange rates could have a material and adverse effect on our results of operations and the value of your investment.

The value of the RMB against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in political and economic conditions in China and by China’s foreign exchange policies. On July 21, 2005, the PRC government changed its decade-old policy of pegging the value of the RMB to the U.S. dollar, and the RMB appreciated more than 20% against the U.S. dollar over the following three years. Between July 2008 and June 2010, this appreciation halted and the exchange rate between the RMB and the U.S. dollar remained within a narrow band. Since June 2010, the RMB has fluctuated against the U.S. dollar, at times significantly and unpredictably. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between the RMB and the U.S. dollar in the future. Currently, we do not sell any products in currencies other than the RMB, but we will be subject to exchange rate risk between U.S. dollar and the RMB as we may expand our businesses into other countries in the near future. As a result, the fluctuations in exchange rates would have a negative effect on our business and results of operations and financial condition.

Our business is conducted in the PRC, our books and records are maintained in RMB, which is the currency of the PRC, and the financial statements that we file with the SEC and provide to our shareholders are presented in United States dollars. Changes in the exchange rate between the RMB and dollar affect the value of our assets and the results of our operations, when presented in United States dollars. The value of the RMB against the United States dollar and other currencies may fluctuate and is affected by, among other things, changes in the PRC’s political and economic conditions and perceived changes in the economy of the PRC and the United States. Any significant revaluation of the RMB may materially and adversely affect our cash flows, revenue and financial condition. Further, our Class A Ordinary Shares offered by this prospectus are offered in United States dollars, we will need to convert the net proceeds we receive into RMB in order to use the funds for our business. Changes in the conversion rate between the United States dollar and the RMB will affect the amount of proceeds we will have available for our business.

Very limited hedging options are available in China to reduce our exposure to exchange rate fluctuations. To date, we have not entered into any hedging transactions in an effort to reduce our exposure to foreign currency exchange risk. While we may decide to enter into hedging transactions in the future, the availability and effectiveness of these hedges may be limited and we may not be able to adequately hedge our exposure or at all. In addition, our currency exchange losses may be magnified by PRC exchange control regulations that restrict our ability to convert RMB into foreign currency. As a result, fluctuations in exchange rates may have a material adverse effect on your investment. 

Under the PRC Enterprise Income Tax Law, we may be classified as a PRC “resident enterprise” for PRC enterprise income tax purposes. Such classification would likely result in unfavorable tax consequences to us and our non-PRC shareholders and have a material adverse effect on our results of operations and the value of your investment.

Under the PRC Enterprise Income Tax Law, or the “EIT Law,” that became effective in January 2008, an enterprise established outside the PRC with “de facto management bodies” within the PRC is considered a “resident enterprise” for PRC enterprise income tax purposes and is generally subject to a uniform 25% enterprise income tax rate on its worldwide income. Under the implementation rules to the EIT Law, a “de facto management body” is defined as a body that has material and overall management and control over the manufacturing and business operations, personnel and human resources, finances, and properties of an enterprise. In addition, a circular, known as SAT Circular 82, issued in April 2009 by the State Administration of Taxation, or the “SAT,” specifies that certain offshore incorporated enterprises controlled by PRC enterprises or PRC enterprise groups will be classified as PRC resident enterprises if the following are located or resident in the PRC: senior management personnel and departments that are responsible for daily production, operation and management; financial and personnel decision making bodies; key properties, accounting books, company seal, and minutes of board meetings and shareholders’ meetings; and half or more of the senior management or directors having voting rights. Further to SAT Circular 82, the SAT issued a bulletin, known as SAT Bulletin 45, which took effect in September 2011, to provide more guidance on the implementation of SAT Circular 82 and clarify the reporting and filing obligations of such “Chinese-controlled offshore incorporated resident enterprises.” SAT Bulletin 45 provides procedures and administrative details for the determination of resident status and administration on post-determination matters. Although both SAT Circular 82 and SAT Bulletin 45 only apply to offshore enterprises controlled by PRC enterprises or PRC enterprise groups, not those controlled by PRC individuals or foreign individuals, the determining criteria set forth in SAT Circular 82 and SAT Bulletin 45 may reflect the SAT’s general position on how the “de facto management body” test should be applied in determining the tax resident status of offshore enterprises, regardless of whether they are controlled by PRC enterprises, PRC enterprise groups, or by PRC or foreign individuals.

If the PRC tax authorities determine that the actual management organ of Huake is within the territory of China, Huake may be deemed to be a PRC resident enterprise for PRC enterprise income tax purposes and a number of unfavorable PRC tax consequences could follow. First, we will be subject to the uniform 25% enterprise income tax on our world-wide income, which could materially reduce our net income. In addition, we will also be subject to PRC enterprise income tax reporting obligations. Finally, dividends payable by us to our investors and gains on the sale of our shares may become subject to PRC withholding tax, at a rate of 10% in the case of non-PRC enterprises or 20% in the case of non-PRC individuals (in each case, subject to the provisions of any applicable tax treaty), if such gains are deemed to be from PRC sources. It is unclear whether non-PRC shareholders of our company would be able to claim the benefits of any tax treaties between their country of tax residence and the PRC in the event that we are treated as a PRC resident enterprise. Any such tax may reduce the returns on your investment in our shares. Although up to the date of this prospectus, Aokai Fa has not been notified or informed by the PRC tax authorities that it has been deemed to be a resident enterprise for the purpose of the EIT Law, we cannot assure you that it will not be deemed to be a resident enterprise in the future.

We face uncertainty with respect to indirect transfers of equity interests in PRC resident enterprises by their non-PRC holding companies.

In February 2015, SAT issued a Public Notice Regarding Certain Corporate Income Tax Matters on Indirect Transfer of Properties by Non-Tax Resident Enterprises, or “SAT Circular 7.” SAT Circular 7 provides comprehensive guidelines relating to indirect transfers of PRC taxable assets (including equity interests and real properties of a PRC resident enterprise) by a non-resident enterprise. In addition, in October 2017, SAT issued an Announcement on Issues Relating to Withholding at Source of Income Tax of Non-resident Enterprises, or “SAT Circular 37,” effective in December 2017, which, among others, amended certain provisions in SAT Circular 7 and further clarify the tax payable declaration obligation by non-resident enterprise. Indirect transfer of equity interest and/or real properties in a PRC resident enterprise by their non-PRC holding companies are subject to SAT Circular 7 and SAT Circular 37.

SAT Circular 7 provides clear criteria for an assessment of reasonable commercial purposes and has introduced safe harbors for internal group restructurings and the purchase and sale of equity through a public securities market. As stipulated in SAT Circular 7, indirect transfers of PRC taxable assets are considered as reasonable commercial purposes if the shareholding structure of both transaction parties falls within the following situations: i) the transferor directly or indirectly owns 80% or above equity interest of the transferee, or vice versa; ii) the transferor and the transferee are both 80% or above directly or indirectly owned by the same party; iii) the percentage in bullet point i) and ii) shall be 100% if over 50% the share value of a foreign enterprise is directly or indirectly derived from PRC real properties. Furthermore, SAT Circular 7 also brings challenges to both foreign transferor and transferee (or other person who is obligated to pay for the transfer) of taxable assets. Where a non-resident enterprise transfers PRC taxable assets indirectly by disposing of the equity interests of an overseas holding company, which is an indirect transfer, the non-resident enterprise as either transferor or transferee, or the PRC entity that directly owns the taxable assets, may report such indirect transfer to the relevant tax authority and the PRC tax authority may disregard the existence of the overseas holding company if it lacks a reasonable commercial purpose and was established for the purpose of reducing, avoiding, or deferring PRC tax. As a result, gains derived from such indirect transfer may be subject to PRC enterprise income tax, and the transferee or other person who is obligated to pay for the transfer is obligated to withhold the applicable taxes, currently at a rate of 10% for the transfer of equity interests in a PRC resident enterprise. 

According to SAT Circular 37, where the non-resident enterprise fails to declare the tax payable pursuant to Article 39 of the Enterprise Income Tax, the tax authority may order it to pay the tax due within required time limits, and the non-resident enterprise shall declare and pay the tax payable within such time limits specified by the tax authority. If the non-resident enterprise, however, voluntarily declares and pays the tax payable before the tax authority orders it to do so within required time limits, it shall be deemed that such enterprise has paid the tax in time.

We face uncertainties as to the reporting and assessment of reasonable commercial purposes and future transactions where PRC taxable assets are involved, such as offshore restructuring, sale of the shares in our offshore subsidiaries, and investments. In the event of being assessed as having no reasonable commercial purposes in an indirect transfer transaction, our company may be subject to filing obligations or taxed if our company is a transferor in such transactions, and may be subject to withholding obligations (to be specific, a 10% withholding tax for the transfer of equity interests) if our company is a transferee in such transactions, under SAT Circular 7 and SAT Circular 37. For transfer of shares in our company by investors who are non-PRC resident enterprises, our PRC subsidiary may be requested to assist in the filing under the SAT circulars. As a result, we may be required to expend valuable resources to comply with the SAT circulars or to request the relevant transferors from whom we purchase taxable assets to comply with these circulars, or to establish that our company should not be taxed under these circulars, which may have a material adverse effect on our financial condition and results of operations.

Moreover, our reorganization involves the transfer of real properties, which subjects us to stricter requirements under SAT Circular 7, and we may face additional tax reporting obligations or tax liabilities if the tax authorities define this transfer as lacking reasonable commercial purpose, which may lead to material adverse effects on our financial condition and the outcomes of our business operations.

We may have difficulty in enforcing any rights we may have under the VIE Agreements in PRC.

As all of the VIE Agreements with Aokai Fa are governed by the PRC laws and provide for the resolution of disputes through arbitration in the PRC, they would be interpreted in accordance with PRC law and any disputes would be resolved in accordance with PRC legal procedures. The legal environment in the PRC is not as developed as in the United States. As a result, uncertainties in the PRC legal system could further limit our ability to enforce these VIE Agreements. Furthermore, these VIE Agreements may not be enforceable in China if PRC government authorities or courts take a view that such VIE Agreements contravene PRC laws and regulations or are otherwise not enforceable for public policy reasons. In the event we are unable to enforce these VIE Agreements, we may not be able to exert effective control over Aokai Fa, and our ability to conduct our business may be materially and adversely affected. Our Class A Ordinary Shares may decline in value or become worthless if we are unable to assert your contractual control rights over the assets of the VIE that conduct all or substantially all of our operations

Chinese government may intervene or influence our operations at any time, or may exert more control over offerings conducted overseas and/or foreign investment in China-based issuers, which could result in a material change in our operations and/or the value of the securities we are registering for sale. Any actions by Chinese government, including any decision to intervene or influence our operations or to exert control over any offering of securities conducted overseas and/or foreign investment in China-based issuers, may cause us to make material changes to our operation, may limit or completely hinder our ability to offer or continue to offer securities to investors, and may cause the value of such securities to significantly decline or be worthless.

The Chinese government has exercised and continues to exercise substantial control over virtually every sector of the Chinese economy through regulation and state ownership. Substantially all of our operations are located in China. Our ability to operate in China may be harmed by changes in its laws and regulations, including those relating to taxation, environmental regulations, land use rights, property and other matters. The central or local governments of these jurisdictions may impose new, stricter regulations or interpretations of existing regulations that would require additional expenditures and efforts on our part to ensure our compliance with such regulations or interpretations. Accordingly, government actions in the future, including any decision not to continue to support recent economic reforms and to return to a more centrally planned economy or regional or local variations in the implementation of economic policies, could have a significant effect on economic conditions in China or particular regions thereof, and could require us to divest ourselves of any interest we then hold in Chinese properties.  

The Chinese government has also published new policies that significantly affected certain industries such as the education and Internet industries in July 2021, and we cannot rule out the possibility that it will in the future release regulations or policies regarding our industry that could adversely affect the business, financial condition, and results of operations of our PRC subsidiary and the VIE. As such, our business segments may be subject to various government and regulatory interference in the provinces in which they operate. We could be subject to regulation by various political and regulatory entities, including various local and municipal agencies and government sub-divisions. We may incur increased costs necessary to comply with existing and newly adopted laws and regulations or penalties for any failure to comply.

Furthermore, the Chinese government has recently indicated an intent to exert more oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers. The Chinese government may also intervene or influence our operations at any time, or may exert more control over offerings conducted overseas and/or foreign investment in China-based issuers, including us, at any time, substantial intervention and influence over the manner of our operations, which could result in a material change in our operations or the value of our ordinary shares. Although we are currently not required to obtain permission from any of the PRC federal or local government and has not received any denial to list on the U.S. exchange, it is uncertain whether or when we might be required to obtain permission from the PRC government to list on U.S. exchanges in the future, and even if such permission is obtained, whether it will be later denied or rescinded, which could significantly limit or completely hinder our ability to offer or continue to offer our securities to investors and cause the value of our shares to significantly decline or be worthless.

We are a holding company and will rely on dividends paid by our subsidiaries for our cash needs. Any limitation on the ability of our subsidiaries to make dividend payments to us, or any tax implications of making dividend payments to us, could limit our ability to pay our parent company expenses or pay dividends to holders of our ordinary shares.

We are a holding company and conduct substantially all of our business through the VIE, which is a limited liability company established in China. We may rely on dividends to be paid by our PRC subsidiary to fund our cash and financing requirements, including the funds necessary to pay dividends and other cash distributions to our shareholders, to service any debt we may incur and to pay our operating expenses. If our PRC subsidiary incurs debt on its own behalf in the future, the instruments governing the debt may restrict its ability to pay dividends or make other distributions to us.

Under PRC laws and regulations, our PRC subsidiary, which is a wholly foreign-owned enterprise in China, may pay dividends only out of its accumulated profits as determined in accordance with PRC accounting standards and regulations. In addition, a wholly foreign-owned enterprise is required to set aside at least 10% of its accumulated after-tax profits each year, if any, to fund a certain statutory reserve fund, until the aggregate amount of such fund reaches 50% of its registered capital. There can be no assurance that the PRC government will not intervene or impose restrictions on our ability to transfer or distribute cash within our organization or to foreign investors, which could result in an inability or prohibition on making transfers or distributions outside of China or Hong Kong and adversely affect our business.

Our PRC subsidiary generates primarily all of its revenue in Renminbi, which is not freely convertible into other currencies. As a result, any restriction on currency exchange may limit the ability of our PRC subsidiary to use its Renminbi revenues to pay dividends to us. The PRC government may continue to strengthen its capital controls, and more restrictions and substantial vetting process may be put forward by State Administration of Foreign Exchange (the “SAFE”) for cross-border transactions falling under both the current account and the capital account. Any limitation on the ability of our PRC subsidiary to pay dividends or make other kinds of payments to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends, or otherwise fund and conduct our business.

In addition, the Enterprise Income Tax Law and its implementation rules provide that a withholding tax rate of up to 10% will be applicable to dividends payable by Chinese companies to non-PRC-resident enterprises unless otherwise exempted or reduced according to treaties or arrangements between the PRC central government and governments of other countries or regions where the non-PRC resident enterprises are incorporated. Any limitation on the ability of our PRC subsidiary to pay dividends or make other distributions to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends, or otherwise fund and conduct our business. 

Restrictions on currency exchange may limit our ability to receive and use financing in foreign currencies, including proceeds from this offering, effectively.

Our PRC subsidiary’s ability to obtain foreign exchange is subject to significant foreign exchange controls and, in the case of transactions under the capital account, requires the approval of and/or registration with PRC government authorities, including the Chinese State Administration of Foreign Exchange, or SAFE. In particular, if we finance our PRC subsidiary by means of foreign debt from us or other foreign lenders, the amount is not allowed to, among other things, exceed the statutory limits and such loans must be registered with the local counterpart of the SAFE. If we finance our PRC subsidiary by means of additional capital contributions, the amount of these capital contributions must first be registered or filed by the relevant government authority.

In the light of the various requirements imposed by PRC regulations on loans to, and direct investment in, PRC entities by offshore holding companies, we cannot assure you that we will be able to complete the necessary government registrations, filings or obtain the necessary government approvals on timely basis, if at all, with respect to future loans or capital contributions by us to our PRC subsidiary. If we fail to complete such registrations, filings, or obtain such approval, our ability to use the proceeds we receive from this offering and to capitalize or otherwise fund our operation may be negatively affected, which could materially and adversely affect our liquidity and our ability to fund and expand our business.

There are significant uncertainties under the EIT Law relating to the withholding tax liabilities of our PRC subsidiary, and dividends payable by our PRC subsidiary to our offshore subsidiaries may not qualify to enjoy certain treaty benefits.

Under the PRC EIT Law and its implementation rules, the profits of a foreign invested enterprise generated through operations, which are distributed to its immediate holding company outside the PRC, will be subject to a withholding tax rate of 10%. Pursuant to the Arrangement between the Mainland China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and Tax Evasion on Income, or the “Double Tax Avoidance Arrangement,” a withholding tax rate of 10% may be lowered to 5% if the PRC enterprise is at least 25% held by a Hong Kong enterprise for at least 12 consecutive months prior to distribution of the dividends and is determined by the relevant PRC tax authority to have satisfied other conditions and requirements under the Double Tax Avoidance Arrangement and other applicable PRC laws.

However, based on the Circular on Certain Issues with Respect to the Enforcement of Dividend Provisions in Tax Treaties, or the “SAT Circular 81,” which became effective on February 20, 2009, if the relevant PRC tax authorities determine, in their discretion, that a company benefits from such reduced income tax rate due to a structure or arrangement that is primarily tax-driven, such PRC tax authorities may adjust the preferential tax treatment. According to Circular on Several Issues regarding the “Beneficial Owner” in Tax Treaties, which became effective as of April 1, 2018, when determining an applicant’s status as the “beneficial owner” regarding tax treatments in connection with dividends, interests, or royalties in the tax treaties, several factors will be taken into account. Such factors include whether the business operated by the applicant constitutes actual business activities, and whether the counterparty country or region to the tax treaties does not levy any tax, grant tax exemption on relevant incomes, or levy tax at an extremely low rate. This circular further requires any applicant who intends to be proved of being the “beneficial owner” to file relevant documents with the relevant tax authorities. Our PRC subsidiary are wholly owned by our Hong Kong subsidiary. However, we cannot assure you that our determination regarding our qualification to enjoy the preferential tax treatment will not be challenged by the relevant PRC tax authority or we will be able to complete the necessary filings with the relevant PRC tax authority and enjoy the preferential withholding tax rate of 5% under the Double Tax Avoidance Arrangement with respect to dividends to be paid by our PRC subsidiary to our Hong Kong subsidiary, in which case, we would be subject to the higher withdrawing tax rate of 10% on dividends received.

The disclosures in our reports and other filings with the SEC and our other public pronouncements are not subject to the scrutiny of any regulatory bodies in the PRC.

We are regulated by the SEC and our reports and other filings with the SEC are subject to SEC review in accordance with the rules and regulations promulgated by the SEC under the Securities Act and the Exchange Act. Our SEC reports and other disclosure and public pronouncements are not subject to the review or scrutiny of any PRC regulatory authority. For example, the disclosure in our SEC reports and other filings are not subject to the review by China Securities Regulatory Commission, a PRC regulator that is responsible for oversight of the capital markets in China. Accordingly, you should review our SEC reports, filings and our other public pronouncements with the understanding that no local regulator has done any review of us, our SEC reports, other filings or any of our other public pronouncements.

We are subject to anti-corruption, anti-bribery, and similar laws, and noncompliance with such laws can subject us to criminal penalties or significant fines and harm our business and reputation.

We are subject to the U.S. Foreign Corrupt Practices Act of 1977, and other anti-corruption, anti-bribery, anti-money laundering, and similar laws in China and the United States. Anti-corruption and anti-bribery laws, which have been enforced aggressively and are interpreted broadly, prohibit companies and their employees and agents from promising, authorizing, making, or offering improper payments or other benefits to government officials and others in the public sector. We leverage our business partners, including channel partners, to sell our products and solutions and host many of our facilities for our network. We may also rely on our business partners to conduct our business abroad. We and our business partners may have direct or indirect interactions with officials and employees of government agencies or state-owned or affiliated entities and we may be held liable for the corrupt or other illegal activities of our business partners and intermediaries, our employees, representatives, contractors, channel partners and agents, even if we do not explicitly authorize such activities.

We cannot assure you that all of our employees and agents have complied with, or in the future will comply with, our policies and applicable law. The investigation of possible violations of these laws, including internal investigations and compliance reviews that we may conduct from time to time, could have a material adverse effect on our business. Noncompliance with these laws could subject us to investigations, severe criminal or civil sanctions, settlements, prosecution, loss of export privileges, suspension or debarment from Chinese government contracts and other contracts, other enforcement actions, the appointment of a monitor, disgorgement of profits, significant fines, damages, other civil and criminal penalties or injunctions, whistleblower complaints, adverse media coverage and other consequences. Other internal and government investigations, regulatory proceedings, or litigation, including private litigation filed by our shareholders, may also follow as a consequence. Any investigations, actions, or sanctions could materially harm our reputation, business, results of operations, and financial condition. Further, the promulgation of new laws, rules or regulations or new interpretations of current laws, rules or regulations could impact the way we do business in other countries, including requiring us to change certain aspects of our business to ensure compliance, which could reduce revenues, increase costs, or subject us to additional liabilities.

Failure to comply with laws and regulations applicable to our business could subject us to fines and penalties and could also cause us to lose customers or otherwise harm our business.

Our business is subject to regulation by various governmental agencies in China, including agencies responsible for monitoring and enforcing compliance with various legal obligations, such as value-added telecommunication laws and regulations, privacy and data protection-related laws and regulations, intellectual property laws, employment and labor laws, workplace safety, environmental laws, consumer protection laws, governmental trade laws, import and export controls, anti-corruption and anti-bribery laws, and tax laws and regulations. In certain jurisdictions, these regulatory requirements may be more stringent than in China. These laws and regulations impose added costs on our business. Noncompliance with applicable regulations or requirements could subject us to:

If any governmental sanctions are imposed, or if we do not prevail in any possible civil or criminal litigation, our business, results of operations, and financial condition could be adversely affected. In addition, responding to any action will likely result in a significant diversion of our management’s attention and resources and an increase in professional fees. Enforcement actions and sanctions could materially harm our business, results of operations, and financial condition.

Any reviews by regulatory agencies or legislatures may result in substantial regulatory fines, changes to our business practices, and other penalties, which could negatively affect our business and results of operations. Changes in social, political, and regulatory conditions or in laws and policies governing a wide range of topics may cause us to change our business practices. Further, our expansion into a variety of new fields also could raise a number of new regulatory issues. These factors could negatively affect our business and results of operations in material ways.

Moreover, we are exposed to the risk of misconduct, errors and failure to functions by our management, employees and parties that we collaborate with, who may from time to time be subject to litigation and regulatory investigations and proceedings or otherwise face potential liability and penalties in relation to noncompliance with applicable laws and regulations, which could harm our reputation and business.

Risks Related to Our Business and Industry

Our limited operating history may not serve as an adequate basis to judge our future prospects and results of operations. We cannot guaranty that we will maintain profitability or that we will not incur net losses in the future.

Our limited operating history in the Camellia Oil industry may not provide a meaningful basis to evaluate our business. Aokai Fa was formed in 2011. We cannot assure you that we will maintain profitability or that we will not incur net losses in the future. We will continue to encounter risks and difficulties that companies at a similar stage of development frequently experience, including, but not limited to, the potential failure to:

If we are not successful in addressing any or all of the foregoing risks, our business, financial condition, results of operations and prospects may be materially and adversely affected.

Our operations are inherently subject to changing conditions that can affect our profitability, such as a decrease in sales of our products and unfavorable weather and environmental conditions.

Our operations are subject to changing conditions that can affect levels of production and production costs for varying lengths of time and can result in decreases in profitability. We are exposed to price risks related to the sale of Camellia Oil.

In addition, our operating results might also be adversely impacted by unfavorable weather and environmental conditions including but not limited to sandstorm and drought. Under unfavorable weather and environmental conditions, we might be forced to pursue special production plans which differ from our routine production activities, including temporarily closing our production facilities, shortening operation time, and reducing production shifts. As a result, our productivity might materially decrease.

Part of our revenue stream depends on to the timely obtain camellia seeds. The supply of camellia seeds and their timely availability can be negated by drought, flood, storm, blight, or the other woes of farming. Any such event or a combination thereof could render us unable to meet the demands of our distribution network. This could have a long-term negative effect on our ability to grow our business.

Quarterly operating results may fluctuate, and our operating results could be adversely affected by various factors such as decrease of product sales, price changes in response to competitive factor and increases in raw material costs.

Our quarterly results of operations may fluctuate as a result of a number of factors, including fluctuation in the demand for our products and changes in the price of core raw materials, including camellia seeds, which directly affect the price of our products and may influence the demand for our products. Therefore, quarter-to-quarter comparisons of results of operations have been and will be impacted by the volume of such orders and shipments. In addition, our operating results could be adversely affected by, among others, the following factors: variations in the mix of product sales; price changes in response to competitive factors; increases in raw material costs and other significant costs; increases in utility costs (particularly electricity), and interruptions in plant operations resulting from the interruption of raw material supplies.

We may need additional capital that we may be unable to obtain in a timely manner or on acceptable terms, or at all.

We may require additional capital in order to grow, remain competitive, develop new services and expand our capacity. Our ability to obtain capital is subject to a variety of uncertainties, including:

We are significantly dependent on the revenues from our trading business of Camellia Oil and, therefore, our results of operations could be negatively impacted if we are unable to sell a sufficient amount of Camellia Oil at satisfactory margins.

For years ended September 30, 2022 and 2021, we derived approximately 93.6% and 95.9% respectively, of our total revenue from the sale of Camellia Oil. Our dependence on the market for camellia seeds for planting makes us particularly vulnerable to negative market changes that may occur in this product line. In particular, if demand for camellia seeds increases or if industry demand exceeds supply, the price of camellia seeds will be driven upward and our margins will be negatively impacted, which would have an adverse effect on our business, results of operations and financial condition.

If we fail to effectively promote our brands, particularly our brand “Aokai Fa” (“奥凯发”), our business, financial condition and results of operations may be materially and adversely affected.

We believe that brand image plays an important role in influencing consumers’ decisions in purchasing our products. Our brands, particularly our brand “Aokai Fa”, are critical to the success of our business. For the fiscal years 2022 and 2021, we derived approximately 93.6% and 95.9%, respectively, of our total revenue from the sales of Camellia Oil products under our brand “Aokai Fa”. Our business and market position largely depend on our ability to successfully promote our brands, particularly our brand “Aokai Fa” and our ability to continue to develop and sell new products under our brands. We cannot assure you that our marketing and promotional activities will remain effective. If we fail to successfully market or promote our brands, our brand recognition may be adversely affected and the demand for our products may decline or fail to increase as much as we expect. If our brands are tarnished in any manner, we may lose our competitive advantage and our business, financial condition and results of operations may be materially and adversely affected.

We are dependent on certain key distributors and loss of these key distributors could have a material adverse effect on our business, financial condition and revenue

Company’s main products are sold indirectly through distributors to our main customers. There is no minimum purchase commitments under the agreements between us and our distributors. If the sales performance of any distributor declines or if any distributor terminates the cooperation with us or even starts to cooperate with any of our competitors, or if there is any modification as to the sales and purchase terms entered into by and between the Company and any main distributor, our business, financial condition and revenue would be seriously impacted.

We do not carry insurance coverage, any material loss to our properties or assets will have a material adverse effect on our financial condition and operations.

We (including our subsidiaries and operating companies) are not insured in amounts that adequately cover the risks of our business operations. As a result, any material loss or damage to our direct or indirect, properties or other assets, or personal injuries arising from our direct or indirect business operations would have a material adverse effect on our financial condition and operations. Neither we, our subsidiaries nor our operating company, carries officer and director liability insurance. This may cause us to experience difficulties in convincing qualified persons to fill such positions.

We may not be able to hire and retain qualified personnel to support our growth and if we are unable to retain or hire these personnel in the future, our ability to improve our products and implement our business objectives could be adversely affected.

We must attract, recruit and retain a sizeable workforce of technically competent employees. Competition for senior management and senior personnel in the PRC is intense, the pool of qualified candidates in the PRC is very limited, and we may not be able to retain the services of our senior executives or senior personnel, or attract and retain high-quality senior executives or senior personnel in the future. This failure could materially and adversely affect our future growth and financial condition.

Inappropriate management or control of actual controller would cause adverse effect on our business, financial condition and results of operations.

Ms. Pingting Wang holds majority shares in and is the actual controller of the Company. Before this offering, her shareholding in the Company amounts to 49.39%. If the internal control of the Company is inefficient, the corporate governance structure is incomplete, or the operation is non-compliant, and Ms. Wang may by way of utilizing her voting rights and her title and position in the Company to affect and interfere with significant capital expenditure, appointment and removal of personnel, development planning, related transactions and other important issues of the Company, and thus the corporate decision-making results may deviate from the best interests of either the Company or the minority shareholders and then may cause adverse effect on our business, financial condition and results of operations.

We are dependent on certain key personnel and loss of these key personnel could have a material adverse effect on our business, financial condition and results of operations.

Our success is, to a certain extent, attributable to the management, sales and marketing, and research and development expertise of key personnel. We are dependent upon the services of Ms. Pingting Wang, our Chairperson of the board, and Mr. Shuguang Chang, who co-founded our company and created the “Aokai Fa” brand with Ms. Wang, for the continued growth and operation of our Company because of their experience in the industry and their personal and business contacts in the PRC. Although we have no reason to believe that Mr. Shuguang Chang and Ms. Pingting Wang will discontinue their services with us or Aokai Fa, the interruption or loss of their services would adversely affect our ability to effectively run our business and pursue our business strategy as well as our results of operations. Besides, our success depends on the continuous devotion of our directors and senior managements, and they are well experienced and have deep understanding as to our business and operation. The loss of these officers could have a material adverse effect upon our business, financial condition, and results of operations. We do not carry key man life insurance for any of our key personnel nor do we foresee purchasing such insurance to protect against a loss of key personnel.

While we currently have no claims, litigation or regulatory actions filed or pending by or against us, future claims, litigation or enforcement actions could arise, and any obligation to pay a judgment or damages could materially harm our business or financial condition.

From time to time, we may be engaged in litigation and incurred significant costs relating to these matters. The inherent uncertainties of litigation, and the ultimate cost and outcome of litigation cannot be predicted. We currently do not carry director and officer liability insurance and other insurance policies that provide protection against various liabilities relating to claims against us and our executive officers and directors. Any expenses and liabilities relating to future lawsuits will materially harm our financial condition. In addition, we are unable to obtain this insurance coverage due to cost or other reasons. It could make it more difficult for us to retain and attract officers and directors and could expose us to potentially self-funding certain future liabilities ordinarily mitigated by director and officer liability insurance.

We indemnify our directors and officers against certain liabilities and do not presently carry director and officer liability insurance.

As permitted under Cayman Islands law and pursuant to our governing documents and indemnification agreements with certain of our officers and directors, we indemnify our directors and officers against monetary damages, including advancing expenses, to the fullest extent permitted by Cayman Islands law. We do not carry director and officer liability insurance, so our assets are at risk in the event of successful claims against us or our officers and directors. Our assets may not be sufficient to satisfy judgments against us and our officers and directors in the event of such successful claims. In addition, our lack of director and officer liability insurance may adversely affect our ability to attract and retain highly qualified directors and officers in the future.

Any disruption in the supply chain of raw materials and our products could adversely impact our ability to produce and deliver products.

As to the products we manufacture, we must manage our supply chain for raw materials and delivery of our products. Supply chain fragmentation and local protectionism within China further complicates supply chain disruption risks. Local administrative bodies and physical infrastructure built to protect local interests pose transportation challenges for raw material transportation as well as product delivery throughout China. In addition, profitability and volume could be negatively impacted by limitations inherent within the supply chain, including competitive, governmental, legal, natural disasters, and other events that could impact both supply and price. Any of these occurrences could cause significant disruptions to our supply chain, manufacturing capability and distribution system that could adversely impact our ability to produce and deliver some of our products.

Most of raw materials used in our main products are procured from farmers. Environmental risks are faced by all farmers engaged in agricultural production, and the methods of cultivation and reap adopted by farmers may significantly affect the output of raw materials. Thus, there may be risks that farmers could not have the ability to supply continuously and stably.

Fluctuation on price of raw materials may cause reduction on profits and adverse impact on our business

Raw materials used in production of our main products are acquired and purchased in China markets, and under the influence of Chinese domestic industrial policies and market price changes, the price of our raw materials changed a lot during recent years. Sharp change on price of raw materials may adversely affect the profitability of the Company.

The retail price of our main product may be subject to control by PRC authorities and may cause material adverse effect on our financial condition and results of operations.

Our main product is pre-packaged camellia oil, which is recognized as one of the essential daily goods purchased daily by common people. When the domestic and international market price of edible vegetable oil roars sharply and causes serious impact on consumption, PRC governmental authorities may conduct price controls in the form of fixed retail prices or retail price ceilings. Due to this, Company may face operational pressure for increasing costs, and our profit level may be likely lowered. Any future price controls or government mandated price reductions may have a material adverse effect on our financial condition and results of operations, including significantly reducing our revenue and profitability.

Our business requires a number of permits and licenses in order to carry on our business.

Food manufacturers in China are required to obtain certain permits and licenses from various PRC governmental authorities, including Food Production License and Food Operation License. Also, we process camellia seeds and participate in the manufacture of camellia oil, which is subject to various PRC laws and regulations pertaining to the agricultural and forestry industry. We have obtained licenses required for the manufacture and operation of edible vegetable oil which includes camellia oil.

Importers and exporters in China are required to complete registration for record before MOFCOM to become a qualified Foreign Trade Operator. We have completed such formalities in accordance with relevant Chinese laws and regulations and obtained certificate for such qualification.

We cannot assure you that we can maintain all required licenses and certificate to carry on our business at all times, and in the past from time to time we may have not been in compliance with all such required licenses or certificates. Moreover, these licenses and certificates are subject to periodic renewal and/or reassessment by the relevant PRC governmental authorities and the standards of such renewal or reassessment may change from time to time. We intend to apply for the renewal of these licenses and certificate when required by then applicable laws and regulations. Any failure by us to obtain and maintain all licenses or certificates necessary to carry on our business at any time could have a material adverse effect on our business, financial condition and results of operations. In addition, any inability to renew these licenses and certificate could severely disrupt our business and prevent us from continuing to carry on our business. Any changes in the standards used by governmental authorities in considering whether to renew or reassess our business licenses, as well as any enactment of new regulations that may restrict the conduct of our business, may also decrease our revenue and/or increase our costs and materially reduce our profitability and prospects. Furthermore, if the interpretation or implementation of existing laws and regulations changes or if new regulations come into effect requiring us to obtain any additional licenses, permits or certifications that were previously not required to operate our existing businesses, we cannot assure you that we may successfully obtain such licenses, permits or certifications.

Adverse publicity associated with our products, ingredients or network marketing program, or those of similar companies, could harm our reputation, financial condition and operating results.

The results of our operations may be significantly affected by the public’s perception of our product and similar companies. This perception is dependent upon opinions concerning:

Adverse publicity concerning any actual or purported failure to comply with applicable laws and regulations regarding product claims and advertising or other aspects of our business, whether or not resulting in enforcement actions or the imposition of penalties, could have an adverse effect on our goodwill and could negatively affect our sales and ability to generate revenue. In addition, our consumers’ perception of the safety and quality of products and ingredients as well as similar products and ingredients distributed by other companies can be significantly influenced by media attention, publicized scientific research or findings, widespread product liability claims and other publicity concerning our products or ingredients or similar products and ingredients distributed by other companies. Adverse publicity, whether or not accurate or resulting from consumers’ use or misuse of our products, that associates consumption of our products or ingredients or any similar products or ingredients with illness or other adverse effects, questions the benefits of our or similar products or claims that any such products are ineffective, inappropriately advertised or have inaccurate instructions as to their use, could negatively impact our reputation or the market demand for our products.

We may not be able to develop new products or expand into new markets; as a result, our business and financial condition could be adversely affected.

The launch and development of new products involve considerable time and commitment which may exert a substantial strain on our ability to manage our existing business and operations. We cannot ensure the success of any new brand or products or that any income will be generated from such new brand or products. If we are not able to develop and introduce new products successfully, or if new products fail to generate sufficient revenues to offset research and development costs, our business, financial condition and results of operations could be adversely affected.

We cannot assure you that we will successfully enter into other markets in China. If we fail to expand into new markets, our business and financial condition could be adversely affected.

Our operations may be disrupted for maintenance services or reasons beyond our control, which could adversely affect our business, financial condition and results of operations.

Our operations could be disrupted for maintenance services or reasons beyond our control. The refinement production lines are subject to a maintenance period of approximately 30 days per year, usually in July, during which the refinement production process stops. Other production lines are subject to on-going maintenance checks. Moreover, other causes of disruption include extreme weather conditions, fire, natural catastrophes, raw material supply disruptions, equipment and system failures, mechanical malfunctions, workforce shortages, workforce actions, human errors or environmental issues. Any significant disruption to our operations could adversely affect our ability to produce and sell products or deliver services, either of which could have a material adverse effect on our business, financial condition and results of operations.

If our products become contaminated, we may be subject to product liability claims and product recalls.

Our products may be subject to contamination by disease-producing organisms or pathogens. These pathogens are found generally in the environment and therefore, there is a risk that they could be present in our products. These pathogens can also be introduced to our products as a result of improper handling during processing or at the consumer level. We have little, if any, control over proper handling procedures once our products are delivered for distribution.

Our products are subject to sampling examinations on product quality by the PRC government authorities. If the products materially failed to meet any relevant quality or safety standards, we may be required by the PRC government authorities to recall the products and we may be held responsible for such failure, in which case our reputation and operations will be adversely affected.

Producers and sellers of defective products in the PRC may be liable for any loss and injury caused by such products. According to the principal laws and regulations governing this area, such as the PRC Civil Law, where a sub-standard product causes property damage or physical injury to any person, the producer or seller of such sub-standard product may be subject to civil liabilities under the PRC Civil Law for such damage or injury. The PRC Civil Law was supplemented by the Product Quality Law. The Product Quality Law is intended to protect the legitimate rights and interests of end-users and consumers and to strengthen the supervision and control of the quality of products. Under the Product Quality Law, producers are responsible for the quality of the products they produce and the products must meet certain minimum standards. Further, the Consumers’ Protection Law gives protection to legal rights and interests of consumers in respect to the safety of people and property in the purchase or use of goods or services. The Consumers’ Protection Law must be observed by operators in the PRC in respect to goods produced or sold by them and in the provision of services.

We may also be liable for loss and injury due to defective products under the relevant laws of all possible jurisdictions other than the PRC which may have a materially adverse effect on our financial condition and results of operations. There can be no assurance that additional regulatory requirements will not be imposed by the PRC or other government authorities outside the PRC. We may also be required to incur extra expenditures to comply with the additional regulatory requirements from time to time. So far there was no product liability claim, product recall or other incident due to contamination of our products. We are not aware of any contamination of our products.

Liabilities and costs caused by environmental protection management may cause adverse effect on our corporate performance and profitability.

The business of the company is restricted by the PRC’s environmental protection laws and regulations. In accordance with the relevant requirements, enterprises engaged in manufacturing and construction that are likely to cause environmental pollution shall take effective measures to control and properly dispose of waste gases, sewage, industrial waste, dust and other environmental waste materials. The manufacturer who discharges the waste will have to pay a fee for discharging the waste in excess of the permitted level. Failure to comply with the relevant laws and regulations may result in fines on the Company imposed by local environmental authorities, and the Company’s facilities may also be suspended or closed as a result. We cannot guarantee that PRC will not change existing laws or regulations relating to environmental protection, or enforce additional or stricter laws or regulations, and that failure to comply with these laws and regulations may result in substantial costs and expenses. Also, the Company may not be able to pass any of such costs or expenses on to any customer by raising the price of the product, which may result in a derogation of the Company’s actual net income. Besides, as a food manufacturer, during the production, we may have to discharge a certain amount of waste water, waste gas and solid waste items. We will face environmental pollution issues if we fail to take appropriate measures to protect environment or due to equipment troubles. Thus, we need to continuously put our efforts and relevant environmental protection equipment and facility into improving the capacity of disposing wastewater, waste gas and solid waste items, and such inputs could cause adverse effect on our profitability.

We may undertake acquisitions, investments, joint ventures or other strategic alliances, which could have a material adverse effect on our ability to manage our business. In addition, such undertakings may not be successful.

Our strategy includes plans to grow both organically and through acquisitions, joint ventures or other strategic alliances. Joint ventures and strategic alliances may expose us to new operational, regulatory and market risks, as well as risks associated with additional capital requirements. We may not be able to identify suitable future acquisition candidates or alliance partners. Even if we identify suitable candidates or partners, we may be unable to complete an acquisition or alliance on terms commercially acceptable to us. If we fail to identify appropriate candidates or partners, or complete desired acquisitions, we may not be able to implement our strategies effectively or efficiently.

In addition, our ability to successfully integrate acquired companies and their operations may be adversely affected by a number of factors. These factors include:

If we fail to integrate acquired companies efficiently, our earnings, revenues growth and business could be negatively affected. Furthermore, the acquired companies may not perform to our expectations for various reasons, including legislative or regulatory changes that affect the products in which the acquired companies specialize, and the loss of key personnel and users. If we are not able to realize the benefits envisioned for such acquisitions, joint ventures or other strategic alliances, our overall profitability and growth plans may be adversely affected.

Our failure to compete effectively may adversely affect our ability to generate revenue.

We compete with other companies, many of whom are developing or can be expected to develop products similar to ours. Many of our competitors are also more established than we are, and have significantly greater financial, technical, marketing and other resources than we presently possess. Some of our competitors have greater name recognition and a larger operation scale and customer base. These competitors may be able to respond more quickly to new or changing opportunities and customer requirements and may be able to undertake more extensive promotional activities, offer more attractive terms to customers, and adopt more aggressive pricing policies. We cannot assure you that we will be able to compete effectively with current or future competitors or that the competitive pressures we face will not harm our business.

Increased competition could lead to lower revenues and higher costs. There is no guarantee that the Company will be able to compete effectively with current and future competitors, nor will it be possible to ensure that competitors will not actively resort to legal or illegal means which aim at destroying the brand and product quality of us or affecting the confidence of our consumers.

We require significant amounts of capital to operate our business and fund capital expenditures. Insufficient cash flow may adversely affect our competitiveness and results of operations.

Our business is capital intensive and we depend on cash provided by our operations as well as access to external financing to operate and expand our business. We require significant amounts of capital to operate our business and fund capital expenditures. Our future funding requirements will depend, to a large extent, on our working capital requirements and the nature of our capital expenditures. We are required to make substantial capital expenditures to maintain and continuously upgrade and expand our production facilities, as well as distribution and marketing network to keep pace with competitive developments, technological advances and changing requirements in our industry. We intend to fund a portion of our future capital expenditures, working capital and other funding requirements from cash flows provided by our operating activities and from external sources of financing. If we are unable to generate sufficient cash flows or raise sufficient external financing on attractive terms to fund these activities, we may not be able to achieve our desired operating efficiencies and expansion plans, which may adversely impact our competitiveness and, therefore, our results of operations.

We face risks related to natural disasters, extreme weather conditions, health epidemics and other catastrophic incidents, which could significantly disrupt our operations.

In the past, China has experienced significant natural disasters, including earthquakes, extreme weather conditions, as well as health scares related to epidemics, and any similar event could materially impact our business in the future. If a disaster or other disruption were to occur in the future that affects the regions where we operate our business, our operations could be materially and adversely affected due to loss of personnel, damages to our manufacturing facilities and volatile Chinese markets. Even if we are not directly affected, such a disaster or disruption could affect the operations or financial condition of our ecosystem participants such as suppliers and distributors, which could harm our results of operations.

In general, our business could be affected by public health epidemics. If any of our employees or staff members who operates manufacturing facilities or conduct R&D activities is suspected of having contracted a contagious disease, we may be required to apply quarantines to our facilities or suspend our manufacturing operations entirely. Furthermore, any future outbreak may restrict economic activities in affected regions and beyond, resulting in reduced business volume, temporary closure of our factories or other disruptions of our business operations and adversely affect our results of operations.

The outbreak of the novel coronavirus, commonly referred to as “COVID-19”, first found in mainland China, then in Asia and eventually throughout the world, has significantly affected business and manufacturing activities within China, including travel restrictions, widespread mandatory quarantines, and suspension of business activities within China. These measures may cause severe business disruptions to our customers and suppliers, and may also lead to postponement of payment from these parties.

However, the COVID-19 outbreak has limited impact on our businesses and operation.

On the production side, Aokai Fa did not encounter a shortage of labor due to COVID-19. As of the date of this prospectus, Aokai Fa’s is running at all of its production capacity as usual and is able to fulfill customers’ needs. On the sales side, currently Aokai Fa’s sales are mainly from Anhui province, Jiangsu province, Guangdong province, Jiangxi province, Shanxi province, Fujian province, Shandong province, Zhejiang province, and Shanghai. Due to the negative impacts of COVID-19 pandemic to general economic conditions in China and to the customers of Aokai Fa, collection of accounts receivable is delayed. On March 28, 2022, the Company extended the AR collection period from 3 months to 5 months. 93% of accounts receivable balances as of September 30, 2022 were collected by the end of February 2023.

In early December 2022, China announced a nationwide loosening of its zero-covid policy, and the country may face a wave in infections after the lifting of these restrictions. The impact of COVID-19 pandemic still depends on the future developments of the pandemic, including new information concerning the global severity of and actions taken to contain the pandemic, or the appearance of new or more severe strains of the virus, which are highly uncertain and unpredictable. Therefore, while we do not expect the COVID-19 pandemic to negatively impacting our business, results of operations, and financial position, the related financial impact cannot be reasonably estimated at this time.

Any failure to protect our trademarks and other intellectual property rights could have a negative impact on our business.

We believe our trademarks and other intellectual property rights are important to our success. Any unauthorized use of our intellectual property rights could harm our competitive advantages and business. Historically, China has not protected intellectual property rights to the same extent as the United States or the Cayman Islands, and infringement of intellectual property rights continues to pose a serious risk of doing business in the PRC. Monitoring and preventing unauthorized use are difficult. The measures we take to protect our intellectual property rights may not be adequate. Furthermore, the application of laws governing intellectual property rights in China and abroad is uncertain and evolving and could involve substantial risks to us. If we are unable to adequately protect our brand and trademarks, we may lose these rights and our business may suffer materially.

The war in Ukraine could materially and adversely affect our business and results of operations.

The recent outbreak of war in Ukraine has already affected global economic markets, including a dramatic increase in the price of oil and gas, and the uncertain resolution of this conflict could result in protracted and/or severe damage to the global economy. Russia’s recent military interventions in Ukraine have led to, and may lead to, additional sanctions being levied by the United States, European Union and other countries against Russia. Russia’s military incursion and the resulting sanctions could adversely affect global energy and financial markets and thus could affect our customers’ businesses and our business, even though we do not have any direct exposure to Russia or the adjoining geographic regions. The extent and duration of the military action, sanctions and resulting market disruptions are impossible to predict, but could be substantial. Any such disruptions caused by Russian military action or resulting sanctions may magnify the impact of other risks described herein. We cannot predict the progress or outcome of the situation in Ukraine, as the conflict and governmental reactions are rapidly developing and beyond their control. Prolonged unrest, intensified military activities or more extensive sanctions impacting the region could have a material adverse effect on the global economy, and such effect could in turn have a material adverse effect on our business, financial condition, results of operations and prospects.

Risks Related to Our Corporate Structure

We do not have direct ownership of the VIE in China and rely on VIE Agreements with the VIE for our business operations, which may not be as effective in providing operational control or enabling us to derive economic benefits as through ownership of controlling equity interests.

We do not have direct ownership of the VIE in China and rely on and expect to continue to rely on the VIE Agreements with the VIE in China and their respective shareholders to operate business. VIE Agreements may not be as effective as an ownership of controlling equity interests would be in providing us with control over the VIE, or in enabling us to derive economic benefits from the operations of, the affiliated consolidated entities. Under the current VIE Agreements, as a legal matter, if any of the affiliated consolidated entities or any of their shareholders fails to perform its, his or her respective obligations under the VIE Agreements, we may have to incur substantial costs and resources to enforce such arrangements, and rely on legal remedies available under PRC laws, including seeking specific performance or injunctive relief, and claiming damages, which we cannot assure you will be effective. For example, if shareholders of a variable interest entity were to refuse to transfer their equity interests in such variable interest entity to us or our designated persons when we exercise the purchase option pursuant to these contractual arrangements, we may have to take a legal action to compel them to fulfill their contractual obligations.

If (i) the applicable PRC authorities invalidate these contractual arrangements for violation of PRC laws, rules and regulations, (ii) any variable interest entity or its shareholders terminate the contractual arrangements or (iii) any variable interest entity or its shareholders fail to perform their obligations under these contractual arrangements, our business operations in China would be materially and adversely affected, and the value of your stock would substantially decrease. Further, if we fail to renew these contractual arrangements upon their expiration, we would not be able to continue our business operations unless the then current PRC law allows us to directly operate businesses in China.

In addition, if any VIE or all or part of its assets become subject to liens or rights of third-party creditors, we may be unable to continue some or all of our business activities, which could materially and adversely affect our business, financial condition and results of operations. If any of the VIE undergoes a voluntary or involuntary liquidation proceeding, its shareholders or unrelated third-party creditors may claim rights to some or all of these assets, thereby hindering our ability to operate our business, which could materially and adversely affect our business and our ability to generate revenues.

All of VIE Agreements are governed by PRC law and provide for the resolution of disputes through arbitration in the PRC. The legal environment in the PRC is not as developed as in some other jurisdictions, such as the United States. As a result, uncertainties in the PRC legal system could limit our ability to enforce these contractual arrangements. In the event we are unable to enforce these contractual arrangements, we may not be able to exert effective control over our operating entities and we may be precluded from operating our business, which would have a material adverse effect on our financial condition and results of operations.

The approval of the CSRC may be required in connection with this offering under a regulation adopted in August 2006, and, if required, we cannot assure you that we will be able to obtain such approval, in which case we may face sanctions by the CSRC or other PRC regulatory agencies for failure to seek the CSRC approval for this offering.

The Regulations on Mergers and Acquisitions of Domestic Companies by Foreign Investors, or the “M&A Rules,” adopted by six PRC regulatory agencies in 2006 and amended in 2009, requires an overseas special purpose vehicle formed for listing purposes through acquisitions of PRC domestic companies and controlled by PRC companies or individuals to obtain the approval of the China Securities Regulatory Commission, or the “CSRC,” prior to the listing and trading of such special purpose vehicle’s securities on an overseas stock exchange. In September 2006, the CSRC published a notice on its official website specifying documents and materials required to be submitted to it by a special purpose vehicle seeking the CSRC approval of its overseas listings. The application of the M&A Rules remains unclear.

Our PRC counsel, Beijing Docvit Law Firm, has advised us based on their understanding of the current PRC law, rules, and regulations that the CSRC’s approval is not required for the listing and trading of our shares on the Nasdaq in the context of this offering, given that:

Our PRC legal counsel, however, has further advised us that there remains some uncertainty as to how the M&A Rules will be interpreted or implemented in the context of an overseas offering and its opinions summarized above are subject to any new laws, rules and regulations or detailed implementations and interpretations in any form relating to the M&A Rules. We cannot assure you that relevant PRC governmental agencies, including the CSRC, would reach the same conclusion as we do. If it is determined that the CSRC approval is required for this offering, we may face sanctions by the CSRC or other PRC regulatory agencies for failure to seek the CSRC approval for this offering. These sanctions may include fines and penalties on our operations in the PRC, limitations on our operating privileges in the PRC, delays in or restrictions on the repatriation of the proceeds from this offering into the PRC, restrictions on or prohibition of the payments or remittance of dividends by our China subsidiary, or other actions that could have a material and adverse effect on our business, financial condition, results of operations, reputation, and prospects, as well as the trading price of our Class A Ordinary Shares. The CSRC or other PRC regulatory agencies may also take actions requiring us, or making it advisable for us, to halt this offering before the settlement and delivery of the Shares that we are offering.

Recently, the General Office of the Central Committee of the Communist Party of China and the General Office of the State Council jointly issued the Opinions on Severe and Lawful Crackdown on Illegal Securities Activities, which was available to the public on July 6, 2021. These opinions emphasized the need to strengthen the administration over illegal securities activities and the supervision on overseas listings by China-based companies. These opinions proposed to take effective measures, such as promoting the construction of relevant regulatory systems, to deal with the risks and incidents facing China-based overseas-listed companies and the demand for cybersecurity and data privacy protection. The aforementioned policies and any related implementation rules to be enacted may subject us to additional compliance requirement in the future. As of the date of this prospectus, we have not received any or been denied of any permission from the PRC authorities to list on U.S. stock exchanges. As these opinions were recently issued, official guidance and interpretation of the opinions remain unclear in several respects at this time. Therefore, we cannot assure you that we will remain fully compliant with all new regulatory requirements of these opinions or any future implementation rules on a timely basis, or at all. We face uncertainty about future actions by the PRC government that could significantly affect the operating company’s financial performance and the enforceability of the VIE Agreements.

On February 17, 2023, the CSRC published the Tentative Measures, which will become effective on March 31, 2023. The Tentative Measures lay out the filing regulation arrangement for both direct and indirect overseas listing, and clarify the determination criteria for indirect overseas listing in overseas markets. Among other things, if a domestic enterprise intends to indirectly offer and list securities in an overseas market, the issuer shall designate a major domestic operating entity responsible for all filing procedures with the CSRC, and such filing obligation shall be completed within three working days after the overseas listing application is submitted. According to the CSRC Answers, starting from March 31, 2023, enterprises that have been listed overseas or satisfy all of the following conditions shall be deemed as “Grandfathered Issuers” and are not required to complete the overseas listing filing immediately, but shall complete filings as required if they conduct refinancing or are involved in other circumstances that require filing with the CSRC: (i) the application for indirect overseas offering or listing shall have been approved by the relevant overseas regulatory authority or stock exchange prior to March 31, 2023 (as the SEC does not approve or disapprove of an offering, this requirement is interpreted to be the SEC’s declaration of the registration statement to be effective with respect to this offering), (ii) the enterprise is not required to reapply for the approval of the relevant overseas regulatory authority or stock exchange, and (iii) such overseas securities offering or listing shall be completed before September 30, 2023. Starting from March 31, 2023, domestic enterprises that have submitted valid applications for overseas offerings and listing but have not obtained the approval from relevant overseas regulatory authority or overseas stock exchange shall complete filings with the CSRC prior to their overseas offering and listings. On February 24, 2023, the CSRC, Ministry of Finance of the PRC, National Administration of State Secrets Protection and National Archives Administration of China jointly issued the Provisions on Strengthening the Confidentiality and Archive Management Work Relating to the Overseas Securities Offering and Listing, or the Confidentiality Provisions, which will come into effect on March 31, 2023 with the Tentative Measures. The Confidentiality Provisions require that, among other things, (a) a domestic company that plans to, either directly or through its overseas listed entity, publicly disclose or provide to relevant individuals or entities including securities companies, securities service providers and overseas regulators, any documents and materials that contain state secrets or working secrets of government agencies, shall first obtain approval from competent authorities according to law, and file with the secrecy administrative department at the same level; and (b) domestic company that plans to, either directly or through its overseas listed entity, publicly disclose or provide to relevant individuals and entities including securities companies, securities service providers and overseas regulators, any other documents and materials that, if leaked, will be detrimental to national security or public interest, shall strictly fulfil relevant procedures stipulated by applicable national regulations. As advised by our PRC counsel, Beijing Docvit Law Firm, if our registration statement on the Form F-1 is not declared to be effective by the SEC prior to March 31, 2023, we will be required to comply with the filing requirements under the Tentative Measures in connection with this offering. On or after March 31, 2023, any failure or perceived failure by the Company or the VIE to comply with the above confidentiality and archives administration requirements under the Tentative Measures and other PRC laws and regulations may result in that the relevant entities would be held legally liable by competent authorities, and referred to the judicial organ to be investigated for criminal liability if suspected of committing a crime.

As of the date of this prospectus, our PRC counsel does not expect there to be any material legal obstacle for us to comply with the filing requirements under the Tentative Measures. Regardless of whether this offering will be subject to any filing requirements with the CSRC under the Tentative Measures, any future securities offerings and listings outside of mainland China by our Company, including but not limited to follow on offerings, secondary listings, and going private transactions, will be subject to the filing requirements with the CSRC under the Tentative Measures, and we cannot assure you that we will be able to comply with such filing requirements in a timely manner, or at all.

Consequently, if you engage in market trading or other activities in anticipation of and prior to the settlement and delivery of the shares we are offering, you would be doing so at the risk that the settlement and delivery may not occur.

The CSRC has published the Tentative Measures for China-based companies seeking to conduct initial public offerings in foreign markets, which could significantly limit or completely hinder our ability to offer or continue to offer our ordinary shares to investors and could cause the value of our ordinary shares to significantly decline or become worthless.

On February 17, 2023, the CSRC published the Tentative Measures, which will become effective on March 31, 2023. If our registration statement on Form F-1 cannot be declared effective on or before March 31, 2023, or if our registration statement on Form F-1 is declared effective on or before March 31, 2023 but we fail to complete this offering and listing on or before September 30, 2023, we will be required to comply with the filing requirements under the Tentative Measures in connection with this offering.  

The Tentative Measures stipulate that the Chinese-based companies, or the issuer, shall fulfill the filing procedures within three working days after the issuer makes an application for initial public offering and listing in an overseas market. The required filing materials for an initial public offering and listing should include at least the following: report, commitment from issuer and securities company, the resolutions, shareholding structure chart and control structure chart, the information of issuer and intermediary project team members, Chinese legal opinion and commitment of Chinese counsel, the prospectus, approval and other documents issued by competent regulatory authorities of relevant industries (if applicable); and security assessment opinion issued by relevant regulatory authorities (if applicable).

In addition, an overseas offering and listing is prohibited under any of the following circumstances: (1) if the intended securities offering and listing is specifically prohibited by national laws and regulations and relevant provisions; (2) if the intended securities offering and listing may constitute a threat to or endangers national security as reviewed and determined by competent authorities under the State Council in accordance with law; (3) if, in the past three years, the domestic enterprise or its controlling shareholders or actual controllers have committed corruption, bribery, embezzlement, misappropriation of property, or other criminal offenses disruptive to the order of the socialist market economy, or are currently under judicial investigation for suspicion of criminal offenses, or are under investigation for suspicion of major violations; (4) if, the domestic enterprise is being investigated according to law due to suspected crimes or major violations of laws and regulations, and there is no clear conclusion; (5) if there are material ownership disputes over the equity of the controlling shareholder or shareholders controlled by controlling shareholders and actual controllers. The Tentative Measures define the legal liabilities of breaches such as failure in fulfilling filing obligations or fraudulent filing conducts, imposing a fine between RMB 1 million and RMB 10 million. Furthermore, the directly responsible executives and other directly responsible personnel of the domestic enterprises may be warned, or fined between RMB 500,000 and RMB 5 million and the controlling shareholder, actual controllers, and other legally appointed persons of the domestic enterprises may be warned, or fined between RMB 1 million and RMB 10 million. If, during the filing process, the domestic enterprises conceal important factors or the content is materially false, and securities are not issued, they are subject to a fine of RMB1 million to RMB10 million. With respect to the directly responsible executives and other directly responsible personnel of the domestic enterprises, they are subject to a warning and fine between RMB 500,000 and RMB 5 million, and with respect to the controlling shareholder, actual controllers, and other legally appointed persons of the domestic enterprises, they are subject to a warning and fine between RMB 1 million and RMB 10 million.

The Tentative Measures may subject us to additional compliance requirement in the future, and we cannot assure you that we will be able to get the clearance of filing procedures under the Tentative Measures on a timely basis, or at all. Any failure of us to fully comply with new regulatory requirements may significantly limit or completely hinder our ability to offer or continue to offer our ordinary shares, cause significant disruption to our business operations, and severely damage our reputation, which would materially and adversely affect our financial condition and results of operations and cause our ordinary shares to significantly decline in value or become worthless.

The M&A Rules and certain other PRC regulations establish complex procedures for some acquisitions of Chinese companies by foreign investors, which could make it more difficult for us to pursue growth through acquisitions in China.

The M&A Rules discussed in the preceding risk factor and recently adopted regulations and rules concerning mergers and acquisitions established additional procedures and requirements that could make merger and acquisition activities by foreign investors more time consuming and complex. For example, the M&A Rules require that the Ministry of Commerce be notified in advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise, if (i) any important industry is concerned, (ii) such transaction involves factors that have or may have impact on the national economic security, or (iii) such transaction will lead to a change in control of a domestic enterprise which holds a famous trademark or PRC time-honored brand. Mergers or acquisitions that allow one market player to take control of or to exert decisive impact on another market player must also be notified in advance to the Ministry of Commerce when the threshold under the Provisions on Thresholds for Prior Notification of Concentrations of Undertakings, or the “Prior Notification Rules,” issued by the State Council in August 2008 is triggered. In addition, the security review rules issued by the Ministry of Commerce that became effective in September 2011 specify that mergers and acquisitions by foreign investors that raise “national defense and security” concerns and mergers and acquisitions through which foreign investors may acquire de facto control over domestic enterprises that raise “national security” concerns are subject to strict review by the Ministry of Commerce, and the rules prohibit any activities attempting to bypass a security review, including by structuring the transaction through a proxy or contractual control arrangement. In the future, we may grow our business by acquiring complementary businesses. Complying with the requirements of the above-mentioned regulations and other relevant rules to complete such transactions could be time consuming, and any required approval processes, including obtaining approval from the Ministry of Commerce or its local counterparts may delay or inhibit our ability to complete such transactions. It is clear that our business would not be deemed to be in an industry that raises “national defense and security” or “national security” concerns. The Ministry of Commerce or other government agencies, however, may publish explanations in the future determining that our business is in an industry subject to the security review, in which case our future acquisitions in the PRC, including those by way of entering into contractual control arrangements with target entities, may be closely scrutinized or prohibited. Our ability to expand our business or maintain or expand our market share through future acquisitions would as such be materially and adversely affected.

We may not be able to consolidate the financial results of some of our affiliated companies or such consolidation could materially adversely affect our operating results and financial condition.

Our business is primarily conducted through Aokai Fa, which currently is considered for accounting purposes as the VIE, and we are considered the primary beneficiary of the VIE for accounting purposes. At the present time, the VIE Agreements by and among Aokai Fa, Aokai Fa’s shareholders, and the WFOE would allow us to be considered as the primary beneficiary of the VIE for accounting purpose, enabling us to consolidate the VIE’s financial results in our consolidated financial statements. In the event that in the future the VIE would no longer meet the definition of a VIE, or we are deemed not to be the primary beneficiary of the VIE for accounting purpose, we would not be able to consolidate line by line that VIE’s financial results in our consolidated financial statements. Also, if in the future an affiliate company becomes a VIE and we become the primary beneficiary of it for accounting purposes, we would be required to consolidate that entity’s financial results in our consolidated financial statements. If such entity’s financial results were negative, this could have a corresponding negative impact on our operating results.

The Chinese government exerts substantial influence over the manner in which we must conduct our business activities. We are currently not required to obtain approval from Chinese authorities to list on U.S exchanges nor the execution of VIE Agreements, however, if the VIE or the holding company were required to obtain approval in the future and were denied permission from Chinese authorities to list on U.S. exchanges, we will not be able to continue listing on U.S. exchange, continue to offer securities to investors, or materially affect the interest of the investors and cause significantly depreciation of our price of Class A Ordinary Shares.

The Chinese government has exercised and continues to exercise substantial control over virtually every sector of the Chinese economy through regulation and state ownership. Our ability to operate in China may be harmed by changes in its laws and regulations, including those relating to taxation, environmental regulations, land use rights, property and other matters. The central or local governments of these jurisdictions may impose new, stricter regulations or interpretations of existing regulations that would require additional expenditures and efforts on our part to ensure our compliance with such regulations or interpretations. Accordingly, government actions in the future, including any decision not to continue to support recent economic reforms and to return to a more centrally planned economy or regional or local variations in the implementation of economic policies, could have a significant effect on economic conditions in China or particular regions thereof, and could require us to divest ourselves of any interest we then hold in Chinese properties.

For example, the Chinese cybersecurity regulator announced on July 2, 2021, that it had begun an investigation of Didi Global Inc. (NYSE: DIDI) and two days later ordered that the company’s app be removed from smartphone app stores. As such, the Company’s business segments may be subject to various government and regulatory interference in the provinces in which they operate. The Company could be subject to regulation by various political and regulatory entities, including various local and municipal agencies and government sub-divisions. The Company may incur increased costs necessary to comply with existing and newly adopted laws and regulations or penalties for any failure to comply.

Furthermore, it is uncertain when and whether the Company will be required to obtain permission from the PRC government to list on U.S. exchanges or enter into VIE Agreements in the future, and even when such permission is obtained, whether it will be denied or rescinded. Although the Company is currently not required to obtain permission from any of the PRC federal or local government to obtain such permission and has not received any denial to list on the U.S. exchange and or enter into VIE Agreements, our operations could be adversely affected, directly or indirectly, by existing or future laws and regulations relating to our business or industry.

We must remit the offering proceeds to the PRC before they may be used to benefit our business in the PRC, and this process may take a number of months.

The proceeds of this offering must be sent back to the PRC, and the process for sending such proceeds back to the PRC may take several months after the closing of this offering. We may be unable to use these proceeds to grow our business until we receive such proceeds in the PRC. In order to remit the offering proceeds to the PRC, we will take the following actions:

First, we will open a special foreign exchange account for capital account transactions. To open this account, we must submit to State Administration for Foreign Exchange (“SAFE”) certain application forms, identity documents, transaction documents, form of foreign exchange registration of overseas investments by domestic residents, and foreign exchange registration certificate of the invested company.

Second, we will remit the offering proceeds into this special foreign exchange account.

Third, we will apply for settlement of the foreign exchange. In order to do so, we must submit to SAFE certain application forms, identity documents, payment order to a designated person, and a tax certificate.

The timing of the process is difficult to estimate because the efficiencies of different SAFE branches can vary materially. Ordinarily, the process takes several months to complete but is required by law to be accomplished within 180 days of application. Until the abovementioned approvals, the proceeds of this offering will be maintained in an interest-bearing account maintained by us in the United States.

You may experience difficulties in effecting service of legal process, enforcing foreign judgments, or bringing actions in China against us or our management named in the prospectus based on foreign laws.

We are an exempted company incorporated under the laws of the Cayman Islands, and we conduct substantially all of our operations in China and substantially all of our assets are located in China. In addition, all our senior executive officers reside within China for a significant portion of the time and most are PRC nationals. As a result, it may be difficult for you to effect service of process upon us or those persons inside mainland China. It may also be difficult for you to enforce in U.S. courts judgments obtained in U.S. courts based on the civil liability provisions of the U.S. federal securities laws against us and our officers and directors, as none of them currently resides in the United States or has substantial assets located in the United States. In addition, there is uncertainty as to whether the courts of the Cayman Islands or the PRC would recognize or enforce judgments of U.S. courts against us or such persons predicated upon the civil liability provisions of the securities laws of the United States or any state.

The recognition and enforcement of foreign judgments are provided for under the PRC Civil Procedures Law. PRC courts may recognize and enforce foreign judgments in accordance with the requirements of the PRC Civil Procedures Law based either on treaties between China and the country where the judgment is made or on principles of reciprocity between jurisdictions. China does not have any treaties or other forms of written arrangement with the United States that provide for the reciprocal recognition and enforcement of foreign judgments. In addition, according to the PRC Civil Procedures Law, the PRC courts will not enforce a foreign judgment against us or our directors and officers if they decide that the judgment violates the basic principles of PRC laws or national sovereignty, security, or public interest. As a result, it is uncertain whether and on what basis a PRC court would enforce a judgment rendered by a court in the United States. See “Enforceability of Civil Liabilities” starting on page 52 of this prospectus for more information.

PRC regulations relating to offshore investment activities by PRC residents may subject our PRC resident beneficial owners or our PRC subsidiary to liability or penalties, limit our ability to inject capital into our PRC subsidiary, limit our PRC subsidiary’s ability to increase their registered capital or distribute profits to us, or may otherwise adversely affect us.

On July 4, 2014, State Administration of Foreign Exchange (“SAFE”) issued the Circular on Issues Concerning Foreign Exchange Control over the Overseas Investment and Financing and Round-trip Investment by Domestic Residents via Special Purpose Vehicles, or “SAFE Circular 37.” According to SAFE Circular 37, prior registration with the local SAFE branch is required for PRC residents, (including PRC individuals and PRC corporate entities as well as foreign individuals that are deemed as PRC residents for foreign exchange administration purpose), in connection with their direct or indirect contribution of domestic assets or interests to offshore companies, known as SPVs. SAFE Circular 37 further requires amendments to the SAFE registrations in the event of any changes with respect to the basic information of the offshore SPV, such as change of a PRC individual shareholder, name and operation term, or any significant changes with respect to the offshore SPV, such as an increase or decrease of capital contribution, share transfer or exchange, or mergers or divisions. SAFE Circular 37 is applicable to our shareholders who are PRC residents and may be applicable to any offshore acquisitions that we make in the future. In February 2015, SAFE promulgated a Notice on Further Simplifying and Improving Foreign Exchange Administration Policy on Direct Investment, or “SAFE Notice 13,” effective in June 2015. Under SAFE Notice 13, applications for foreign exchange registration of inbound foreign direct investments and outbound overseas direct investments, including those required under SAFE Circular 37, will be filed with qualified banks instead of SAFE. The qualified banks will directly examine the applications and accept registrations under the supervision of SAFE.

In addition to SAFE Circular 37 and SAFE Notice 13, our ability to conduct foreign exchange activities in China may be subject to the interpretation and enforcement of the Implementation Rules of the Administrative Measures for Individual Foreign Exchange promulgated by SAFE in January 2007 (as amended and supplemented, the “Individual Foreign Exchange Rules”). Under the Individual Foreign Exchange Rules, any PRC individual seeking to make a direct investment overseas or engage in the issuance or trading of negotiable securities or derivatives overseas must make the appropriate registrations in accordance with SAFE provisions, the failure of which may subject such PRC individual to warnings, fines, or other liabilities.

Our current shareholders, who are subject to the SAFE Circular 37 and Individual Foreign Exchange Rules, have completed the initial registrations with the qualified banks as required by the regulations. We may not be informed of the identities of all the PRC residents holding direct or indirect interest in our company, however, and we have no control over any of our future beneficial owners. Thus, we cannot provide any assurance that our current or future PRC resident beneficial owners will comply with our request to make or obtain any applicable registrations or continuously comply with all registration procedures set forth in these SAFE regulations. Such failure or inability of our PRC residents beneficial owners to comply with these SAFE regulations may subject us or our PRC resident beneficial owners to fines and legal sanctions, restrict our cross-border investment activities, or limit our PRC subsidiary’s ability to distribute dividends to, or obtain foreign-exchange-dominated loans from, our company, or prevent us from being able to make distributions or pay dividends, as a result of which our business operations and our ability to distribute profits to you could be materially and adversely affected.

PRC regulation of parent/subsidiary loans and direct investment by offshore holding companies to PRC entities may delay or prevent us from using the proceeds of this offering to make loans or additional capital contributions to the VIE, which could materially and adversely affect our liquidity and our ability to fund and expand our business.

Under PRC laws and regulations, we are permitted to utilize the proceeds from this offering to fund our PRC subsidiary by making loans to or additional capital contributions to our PRC subsidiary, subject to applicable government registration, statutory limitations on amount, and approval requirements. The amount of capital contributions that we may make to Zhongruiyuan is RMB10,000,000 (approximately $1,453,319), without obtaining approvals from SAFE or other government authorities. Additionally, Zhongruiyuan may increase its registered capital to receive additional capital contributions from us and currently there is no statutory limit to increasing its registered capital, subject to satisfaction of applicable government and filing requirements. Pursuant to relevant PRC regulations, we may provide loans to Zhongruiyuan up to the larger amount of (i) the balance between the registered total investment amount and registered capital of Zhongruiyuan, or (ii) twice the amount of the net assets of Zhongruiyuan calculated in accordance with PBOC Circular 9, subject to satisfaction of applicable government registration or approval requirements. For any amount of loans that we may extend to Zhongruiyuan, such loans must be registered with the local counterpart of SAFE. For more details, see “Regulation—Regulations Relating to Foreign Debt.” These PRC laws and regulations may significantly limit our ability to use the RMB converted from the net proceeds of this offering to fund the establishment of new entities in China by our PRC subsidiary or to invest in or acquire any other PRC companies through our PRC subsidiary. Moreover, we cannot assure you that we will be able to complete the necessary registrations or obtain the necessary government approvals on a timely basis, if at all, with respect to future loans to our PRC subsidiary or future capital contributions by us to our PRC subsidiary. If we fail to complete such registrations or obtain such approvals, our ability to use the proceeds we received or expect to receive from our offshore offerings and to capitalize or otherwise fund our PRC operations may be negatively affected, which could materially and adversely affect our business, including our liquidity and our ability to fund and expand our business.

If we are classified as a passive foreign investment company, United States taxpayers who own our Class A Ordinary Shares may have adverse United States federal income tax consequences.

A non-U.S. corporation such as ourselves will be classified as a passive foreign investment company, which is known as a PFIC, for any taxable year if, for such year, either

Passive income generally includes dividends, interest, rents and royalties (other than rents or royalties derived from the active conduct of a trade or business) and gains from the disposition of passive assets.

If we are determined to be a PFIC for any taxable year (or portion thereof) that is included in the holding period of a U.S. taxpayer who holds our Class A Ordinary Shares, the U.S. taxpayer may be subject to increased U.S. federal income tax liability and may be subject to additional reporting requirements.

Depending on the amount of cash we raise in this offering, together with any other assets held for the production of passive income, it is possible that, for our 2022 taxable year or for any subsequent year, more than 50% of our assets may be assets which produce passive income. We will make this determination following the end of any particular tax year. Although the law in this regard is unclear, we are treating Aokai Fa as being owned by us for United States federal income tax purposes, not only because we control their management decisions, but also because we are entitled to the economic benefits associated with Aokai Fa, and as a result, we are treating Aokai Fa as our wholly-owned subsidiary for U.S. federal income tax purposes. For purposes of the PFIC analysis, in general, according to Internal Revenue Code Section 1297(c), a non-U.S. corporation is deemed to own its pro rata share of the gross income and assets of any entity in which it is considered to own at least 25% of the equity by value. Although WFOE does not technically own any stock in Aokai Fa, because of its control over management decisions of Aokai Fa, its entitlement to economic benefits associated with Aokai Fa, and the inclusion of Aokai Fa as part of the consolidated group (under Accounting Standards Codification (ASC) Topic 810, “Consolidation,” VIE is generally consolidated with other related entities under common control), there is a risk that WFOE’s interest in Aokai Fa might be considered a deemed stock interest. Therefore, the income and assets of Aokai Fa should be included in the determination of whether or not we are a PFIC in any taxable year Since there is little to no guidance other than the statute itself (Internal Revenue Code Section 1297(c)) and analogous portions of the code, treasury regulations and other accepted authorities, the IRS could challenge our position that the look through rule should apply in this. In the event the IRS takes the position that we should not be treated as owning Aokai Fa for United States federal income tax purposes, we would likely be treated as a PFIC.

The laws of the Cayman Islands may not provide our shareholders with benefits comparable to those provided to shareholders of corporations incorporated in the United States.

We are a Cayman Islands exempted company with limited liability. Our corporate affairs are governed by our Articles of Association (as may be amended and restated from time to time) and by the laws of the Cayman Islands. The rights of shareholders and the responsibilities of members of our board of directors may be different from the rights of shareholders and responsibilities of directors in companies governed by the laws of U.S. jurisdictions. In particular, as a matter of Cayman Islands law, directors of a Cayman Islands company owe fiduciary duties to the company and separately a duty of care, diligence and skill to the company. Under Cayman Islands law, directors and officers owe the following fiduciary duties: (i) a duty to act in good faith in what the director or officer believes to be in the best interests of the company as a whole; (ii) a duty to exercise powers for the purposes for which those powers were conferred and not for a collateral purpose; (iii) directors should not improperly fetter the exercise of future discretion; (iv) a duty to exercise powers fairly as between different sections of shareholders; (v) a duty to exercise independent judgment; and (vi) a duty not to put themselves in a position in which there is a conflict between their duty to the company and their personal interests. Our Articles of Association have varied this last obligation by providing that a director must disclose the nature and extent of his or her interest, including those that may be a material interest, in any contract or arrangement, and following such disclosure and subject to any restriction/disqualification where the interest is material or any separate requirement under applicable law or the listing rules of the Nasdaq, and unless disqualified by the chairperson of the relevant meeting, such director may vote in respect of any transaction or arrangement in which he or she is interested and may be counted in the quorum at the meeting. Conversely, under Delaware corporate law, a director has a fiduciary duty to the corporation and its stockholders (made up of two components) and the director’s duties prohibit self-dealing by a director and mandate that the best interest of the corporation and its shareholders take precedence over any interest possessed by a director, officer or controlling shareholder and not shared by the shareholders generally. See “Description of Share Capital —Differences in Corporate Law” starting on page 106 of this prospectus for more information.

The economic substance legislation of the Cayman Islands may adversely impact us or our operations.

The Company is subject to Cayman Islands economic substance legislation (“ESA”) requiring that where the Company carries on a relevant activity (as defined in the ESA) it must maintain economic substance within the Cayman Islands, including adequate premises and employees within the Cayman Islands. As an entity subject to the ESA, the Company is required to assess its operations to determine the required compliance (if any) with the ESA, to file an annual notification with the Cayman Islands Registrar of Companies disclosing whether the Company is carrying out any relevant activities within the meaning of the ESA and an annual return with the Department of International Tax Co-Operation. Where applicable, the Company must establish that its operations satisfy the economic substance requirements of the ESA. The Company is required to monitor its operations to ensure it remains in compliance with all requirements under the ESA. Failure to satisfy these requirements may subject the Company to penalties under the ESA. 

Our dual class structure concentrates a majority of voting power in Ms. Pingitng Wang, our Chief Executive Officer and Chairperson of the Board, who is the major owner of our Class B Ordinary Shares.

On September 17, 2021, we re-classified and re-designated our Ordinary Shares into Class A Ordinary Shares and Class B Ordinary Shares by filing our amended and restated memorandum and articles of association with the Cayman Islands Registrar of Companies. Each of our Class B Ordinary Share has twenty (20) votes per share, and each Class A Ordinary Share has one (1) vote. Because of the twenty-to-one voting ratio between our Class B and Class A Ordinary Shares, the holders of our Class B Ordinary Shares collectively continue to control a majority of the combined voting power of our Ordinary Shares and therefore are able to control all matters submitted to our shareholders for approval. All of our issued and outstanding Class B Ordinary Shares are beneficially held by Ms. Pingting Wang, our Chief Executive Officer and Chairperson of the Board, and Mr. Tingyin Zhang, our former Chairman of the Board. On November 4, 2022, we filed further amended and restated memorandum and articles of association with the Cayman Islands Registrar of Companies to effectuate a reverse split of the then issued and outstanding shares at a ratio of one-for-four. Pursuant to the amended and restated memorandum and articles of association, our authorized shares are re-classified and re-designated into 2,500,000 preferred shares of par value of US$0.002 each and an aggregate of 22,500,000 Ordinary Shares of par value of US$0.002 each, of which 17,500,000 shares are Class A Ordinary Shares of par value of US$0.002 each and 5,000,000 shares are Class B ordinary shares of par value of US$0.002 each. As of the date of this prospectus, Ms. Wang holds 2,469,500 Class B Ordinary Shares, representing 95.13% of the voting power of our capital stock. As a result, this concentrated control may limit or preclude your ability to influence corporate matters for the foreseeable future, including the election of directors, amendments of our organizational documents, and any merger, consolidation, sale of all or substantially all of our assets, or other major corporate transaction requiring shareholder approval. In addition, this may prevent or discourage unsolicited acquisition proposals or offers for our capital stock that you may feel are in your best interest as one of our shareholders. 

Future transfers by holders of Class B Ordinary Shares will generally result in those shares converting to Class A Ordinary Shares, subject to limited exceptions, such as certain transfers effected for estate planning purposes. The conversion of Class B Ordinary Shares to Class A Ordinary Shares will have the effect, over time, of increasing the relative voting power of those holders of Class B Ordinary Shares who retain their shares in the long term.

Any future issuances of Class B Ordinary Shares or conversion of Class B Ordinary Shares into Class A Ordinary Shares may be dilutive to the voting power of the holders of Class A Ordinary Shares.

As of the date of this prospectus, our issued and outstanding ordinary shares consist of 2,530,500 Class A Ordinary Shares and 2,469,500 Class B Ordinary Shares. In respect of matters requiring the votes of shareholders, holders of Class A ordinary shares are entitled to one vote per share, while holders of Class B Ordinary Shares are entitled to twenty (20) votes per share based on our dual-class share structure. Each Class B Ordinary Share is convertible at the option of the holder of Class B Ordinary Shares at any time into one Class A Ordinary Share (unless otherwise described herein and adjusted as per our Articles of Association). If any such conversions occur, the total number of Class A Ordinary Shares issued and outstanding will be increased and be dilutive to our other shareholders.

If any of these newly issued Class A Ordinary Shares are offered for sale in the public market, the sales could adversely affect the prevailing market price by lowering the bid price of our Class A Ordinary Shares. In addition, issuance of Class A Ordinary Shares pursuant to the conversion of Class B Ordinary Shares may also materially impair our ability to raise capital through the future sale of equity securities because the issuance of the Class A Ordinary Shares would cause further dilution of our securities.

Risks Relating to this Offering and the Trading Market

There has been no public market for our Class A Ordinary Shares prior to this offering, and you may not be able to resell our Class A Ordinary Shares at or above the price you pay for them, or at all.

Prior to this offering, there has not been a public market for our Class A Ordinary Shares. We have applied for the listing of our Class A Ordinary Shares on the Nasdaq Capital Market. However, an active public market for our Class A Ordinary Shares may not develop or be sustained after the offering, in which case the market price and liquidity of our Class A Ordinary Shares will be materially and adversely affected.

The initial public offering price for our Class A Ordinary Shares may not be indicative of prices that will prevail in the trading market and such market prices may be volatile.

The initial public offering price for our Class A Ordinary Shares will be determined by negotiations between us and the underwriters, and does not bear any relationship to our earnings, book value or any other indicia of value. We cannot assure you that the market price of our Class A Ordinary Shares will not decline significantly below the initial public offering price. The financial markets in the United States and other countries have experienced significant price and volume fluctuations in the last few years. Volatility in the price of our Class A Ordinary Shares may be caused by factors outside of our control and may be unrelated or disproportionate to changes in our results of operations.

Certain recent initial public offerings of companies with public floats comparable to our anticipated public float have experienced extreme volatility that was seemingly unrelated to the underlying performance of the respective company. We may experience similar volatility, which may make it difficult for prospective investors to assess the value of our Class A Ordinary Shares.

In addition to the risks addressed above in “— The initial public offering price for our Class A Ordinary Shares may not be indicative of prices that will prevail in the trading market and such market prices may be volatile”, our Class A Ordinary Shares may be subject to extreme volatility that is seemingly unrelated to the underlying performance of our business. Recently, companies with comparable public floats and initial public offering sizes have experienced instances of extreme stock price run-ups followed by rapid price declines, and such stock price volatility was seemingly unrelated to the respective company’s underlying performance. Upon the consummation of this offering, we will have a relatively small public float due to the relatively small size of this offering, the ownership percentage of our executive officers and directors, and greater than 5% shareholders. As a result of our small public float, our Class A Ordinary Shares may be less liquid and have greater stock price volatility than the shares of companies with broader public ownership. The rapid and substantial price volatility, including any stock run-up, may be unrelated to our actual or expected operating performance and financial condition or prospects, making it difficult for prospective investors to assess the rapidly changing value of our Class A Ordinary Shares. This volatility may prevent you from being able to sell your securities at or above the price you paid for your securities. In addition, you may experience losses, which may be material, if the price of our Class A Ordinary Shares declines after this offering or if you purchase our Class A Ordinary Shares prior to any price decline.

You will experience immediate and substantial dilution in the net tangible book value of Class A Ordinary Shares purchased.

The initial public offering price of our Class A Ordinary Shares is substantially higher than the (pro forma) net tangible book value per share of our Class A Ordinary Shares. Consequently, when you purchase our Class A Ordinary Shares in the offering and upon completion of the offering, you will incur immediate dilution of US$1.05 per Class A Ordinary Share, assuming an initial public offering price of US$5.00, which is the midpoint of the price range as set forth on the cover page of this prospectus. See “Dilution” starting on page 56 of this prospectus for more information. In addition, you may experience further dilution to the extent that additional Class A Ordinary Shares are issued upon exercise of outstanding options we may grant from time to time.

Substantial future sales of our Class A Ordinary Shares or the anticipation of future sales of our Class A Ordinary Shares in the public market could cause the price of our Class A Ordinary Shares to decline.

Sales of substantial amounts of our Class A Ordinary Shares in the public market after this offering, or the perception that these sales could occur, could cause the market price of our Class A Ordinary Shares to decline. There were 2,530,500 Class A Ordinary Shares issued and outstanding before the consummation of this offering and 3,780,500 Class A Ordinary Shares will be outstanding immediately after the consummation of this offering. Sales of these shares into the market could cause the market price of our Class A Ordinary Shares to decline.

We do not intend to pay dividends for the foreseeable future.

We currently intend to retain any future earnings to finance the operation and expansion of our business, and we do not expect to declare or pay any dividends in the foreseeable future. As a result, you may only receive a return on your investment in our Class A Ordinary Shares if the market price of our Class A Ordinary Shares increases.

If securities or industry analysts do not publish research or reports about our business, or if the publish a negative report regarding our Class A Ordinary Shares, the price of our Class A Ordinary Shares and trading volume could decline.

The trading market for our Class A Ordinary Shares may depend in part on the research and reports that industry or securities analysts publish about us or our business. We do not have any control over these analysts. If one or more of the analysts who cover us downgrade us, the price of our Class A Ordinary Shares would likely decline. If one or more of these analysts cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause the price of our Class A Ordinary Shares and the trading volume to decline.

The estimates of market opportunity, forecasts of market growth included in this prospectus may prove to be inaccurate, and any real or perceived inaccuracies may harm our reputation and negatively affect our business. Even if the market in which we compete achieves the forecasted growth, our business could fail to grow at similar rates, if at all.

Market opportunity estimates and growth forecasts included in this prospectus are subject to significant uncertainty and are based on assumptions and estimates that may not prove to be accurate. The variables that go into the calculation of our market opportunities are subject to change over time, and there is no guarantee that any particular number or percentage of addressable companies covered by our market opportunities estimates will purchase our products and solutions at all or generate any particular level of revenues for us. Even if the market in which we compete meets the size estimates and growth forecasted in this prospectus, our business could fail to grow for a variety of reasons, including reasons outside of our control, such as competition in our industry. 

The market price of our Class A Ordinary Shares may be volatile or may decline regardless of our operating performance, and you may not be able to resell your shares at or above the initial public offering price.

The initial public offering price for our Class A Ordinary Shares will be determined through negotiations between the underwriters and us and may vary from the market price of our Class A Ordinary Shares following our initial public offering. If you purchase our Class A Ordinary Shares in our initial public offering, you may not be able to resell those shares at or above the initial public offering price. We cannot assure you that the initial public offering price of our Class A Ordinary Shares, or the market price following our initial public offering, will equal or exceed prices in privately negotiated transactions of our shares that have occurred from time to time prior to our initial public offering. The market price of our Class A Ordinary Shares may fluctuate significantly in response to numerous factors, many of which are beyond our control, including:

In addition, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. Stock prices of many companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies. In the past, stockholders have filed securities class action litigation following periods of market volatility. If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from our business, and adversely affect our business.

Our management has broad discretion to determine how to use the funds raised in the offering and may use them in ways that may not enhance our results of operations or the price of our Class A Ordinary Shares.

We anticipate that we will use the net proceeds from this offering for working capital and other corporate purposes. Our management will have significant discretion as to the use of the net proceeds to us from this offering and could spend the proceeds in ways that do not improve our results of operations or enhance the market price of our Class A Ordinary Shares.

We incur significantly increased costs as a result of operating as a public company, and our management has no prior experience in managing and operating a public company and required to devote substantial time to compliance initiatives and reporting requirements associated therewith.

As a public company, we incur significant legal, accounting and other expenses. We are subject to the reporting requirements of the Exchange Act, which requires, among other things, that we file with the SEC annual, quarterly and current reports with respect to our business and financial condition. In addition, the Sarbanes-Oxley Act, and related SEC and Nasdaq rules impose significant requirements on public companies, including requiring establishment and maintenance of effective disclosure and financial controls and changes in corporate governance practices. Further, in July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, was enacted. There are significant corporate governance and executive compensation-related provisions in the Dodd-Frank Act that require the SEC to adopt additional rules and regulations in these areas such as “say on pay” and proxy access. Recent legislation permits emerging growth companies to implement many of these requirements over a longer period and up to five years from the pricing of our IPO. We intend to take advantage of this new legislation, but cannot guarantee that we will not be required to implement these requirements sooner than budgeted or planned and thereby incur unexpected expenses. Stockholder activism, the current political environment and the current high level of government intervention and regulatory reform may lead to substantial new regulations and disclosure obligations, which may lead to additional compliance costs and impact the manner in which we operate our business in ways we cannot currently anticipate.

Our current management has no experience managing and operating a public company and relies in many instances on the professional experience and advice of third parties, including our attorneys and accountants. Most of our middle and top management staff were not educated and trained in the United States or other Western countries, and as such have limited experience in the US capital markets. We may have difficulty hiring new employees in the PRC with such training. As a result, we may experience difficulty in establishing management, legal and financial controls and collecting financial data and preparing financial statements that meet US standards. We may also experience difficulties in implementing and maintaining adequate internal control over financial reporting as required under Section 404 of the Sarbanes-Oxley Act of 2002, as amended. This may result in significant deficiencies or material weaknesses in our internal controls, which could impact the reliability of our financial statements and prevent us from complying with the rules and regulations of the SEC.

In addition, the rules and regulations applicable to public companies have substantially increased our legal and financial compliance costs and have made some activities more time-consuming and costly. If these requirements divert the attention of our management and personnel from other business concerns, they could have a material adverse effect on our business, financial condition, results of operations, stock price and prospects. The increased costs will decrease our net income or increase our net loss and may require us to reduce costs in other areas of our business. For example, these rules and regulations have made it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to incur substantial costs to maintain the same or similar coverage. The impact of these requirements could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as executive officers. 

We recently restated our financial statements because of an accounting error and our internal controls over financial reporting are deficient. We cannot assure you that future accounting errors will not occur that will result in additional restatements. If we fail to remediate the material weaknesses in our internal control over financial reporting that have been identified, we may fail to meet our reporting obligations or be unable to accurately report our results of operations or prevent fraud, and investor confidence and the market price of our Class A Ordinary Shares may be materially and adversely affected.

As described later in this prospectus under “Management’s Discussion and Analysis - Restatement of financial statements for the year ended September 30, 2021,” in February 2022, we were required to restate our financial statements for the year ended September 30, 2021 because of an accounting error. Because we have an inadequate number personnel in China with the requisite expertise in generally accepted accounting principles to ensure the proper application thereof, there is more than a remote likelihood that additional misstatements could occur that we do not detect or prevent and which could be material to our annual or interim financial statements. Prior to this offering, we have been a private company with limited accounting personnel and other resources with which to address our internal controls and procedures. Our independent registered public accounting firm has not conducted an audit of our internal control over financial reporting. However, in preparing our consolidated financial statements as of and for the years ended September 30, 2022 and 2021, we and our independent registered public accounting firm have identified material weaknesses in our internal control over financial reporting, as defined in the standards established by the Public Company Accounting Oversight Board of the United States, or “PCAOB,” and other control deficiencies. The material weaknesses identified included (i) a lack of accounting staff and resources with appropriate knowledge of generally accepted accounting principles in the United States (“U.S. GAAP”) and SEC reporting and compliance requirements; (ii) a lack of sufficient documented financial closing policies and procedures; (iii) a lack of independent directors and an audit committee; and (iv) a lack of an effective review process by the accounting manager and management.  Following the identification of the material weaknesses and control deficiencies, we plan to continue to take remedial measures including (i) hiring more qualified accounting personnel with relevant U.S. GAAP and SEC reporting experience and qualifications to strengthen the financial reporting function and to set up a financial and system control framework; (ii) implementing regular and continuous U.S. GAAP accounting and financial reporting training programs for our accounting and financial reporting personnel; (iii) setting up an internal audit function as well as engaging an external consulting firm to assist us with assessment of Sarbanes-Oxley compliance requirements and improvement of overall internal control; and (iv) appointing independent directors, establishing an audit committee, and strengthening corporate governance. However, the implementation of these measures may not fully address the material weaknesses in our internal control over financial reporting. Our failure to correct the material weaknesses or our failure to discover and address any other material weaknesses or control deficiencies could result in inaccuracies in our financial statements and could also impair our ability to comply with applicable financial reporting requirements and related regulatory filings on a timely basis. As a result, our business, financial condition, results of operations and prospects, as well as the trading price of our Class A Ordinary Shares, may be materially and adversely affected. Moreover, ineffective internal control over financial reporting significantly hinders our ability to prevent fraud. 

Upon completion of this offering, we will become a public company in the United States subjecting to the Sarbanes-Oxley Act of 2002. Section 404 of the Sarbanes-Oxley Act of 2002 will require that we include a report of management on our internal control over financial reporting in our annual report on Form 20-F beginning with our annual report in our second annual report after becoming a public company.   In addition, once we cease to be an “emerging growth company,” as such term is defined in the JOBS Act, our independent registered public accounting firm may need to attest to and report on the effectiveness of our internal control over financial reporting. However, while we remain an emerging growth company, we will not be required to include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm in our annual filings with the SEC. Our management may conclude that our internal control over financial reporting is not effective. Moreover, even if our management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm, after conducting its own independent testing, may issue a report that is qualified if it is not satisfied with our internal controls or the level at which our controls are documented, designed, operated, or reviewed, or if it interprets the relevant requirements differently from us.

As a foreign private issuer, we are permitted to, and we will, rely on exemptions from certain Nasdaq Stock Exchange corporate governance standards applicable to domestic U.S. issuers. This may afford less protection to holders of our shares.

We are exempted from certain corporate governance requirements of the Nasdaq listing rules by virtue of being a foreign private issuer. We are required to provide a brief description of the significant differences between our corporate governance practices and the corporate governance practices required to be followed by domestic U.S. companies listed on the Nasdaq. The standards applicable to us are considerably different than the standards applied to domestic U.S. issuers. For instance, we are not required to:

We have relied on and intend to continue to rely on some of these exemptions. As a result, you may not be provided with the benefits of certain corporate governance requirements of the Nasdaq.

If we cease to qualify as a foreign private issuer, we would be required to comply fully with the reporting requirements of the Exchange Act applicable to U.S. domestic issuers, and we would incur significant additional legal, accounting and other expenses that we would not incur as a foreign private issuer.

We expect to qualify as a foreign private issuer upon the completion of this offering. As a foreign private issuer, we will be exempt from the rules under the Exchange Act prescribing the furnishing and content of proxy statements, and our officers, directors and principal shareholders will be exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we will not be required under the Exchange Act to file periodic reports and financial statements with the SEC as frequently or as promptly as United States domestic issuers, and we will not be required to disclose in our periodic reports all of the information that United States domestic issuers are required to disclose. While we currently expect to qualify as a foreign private issuer immediately following the completion of this offering, we may cease to qualify as a foreign private issuer in the future.

We are and will be a “controlled company” within the meaning of the Nasdaq listing requirements upon the closing of this offering and, as a result, will qualify for, and intend to rely on, exemptions from certain corporate governance requirements. You will not have the same protections afforded to shareholders of companies that are subject to such requirements.

We are and will be a “controlled company” as defined under the rules of the Nasdaq upon the closing of this offering since our Chairperson of the Board and Chief Executive Officer Ms. Pingting Wang beneficially owns more than 50% of our total voting power. For so long as we remain a controlled company under this definition, we are permitted to elect to rely on certain exemptions from corporate governance rules, including:

Although we currently do not intend to rely on the “controlled company” exemptions under the Nasdaq listing rules, we could elect to rely on those exemptions in the future. As a result, you may not have the same protection afforded to shareholders of companies that are subject to these corporate governance requirements.

If we cannot satisfy, or continue to satisfy, the initial listing requirements and other rules of Nasdaq Capital Market, although we exempt from certain corporate governance standards applicable to US issuers as a Foreign Private Issuer, our securities may not be listed or may be delisted, which could negatively impact the price of our securities and your ability to sell them.

We will seek to have our securities approved for listing on the Nasdaq Capital Market upon consummation of this offering. We cannot assure you that we will be able to meet those initial listing requirements at that time. Even if our securities are listed on the Nasdaq Capital Market, we cannot assure you that our securities will continue to be listed on the Nasdaq Capital Market.

In addition, following this offering, in order to maintain our listing on the Nasdaq Capital Market, we will be required to comply with certain rules of Nasdaq Capital Market, including those regarding minimum stockholders’ equity, minimum share price and certain corporate governance requirements. Even if we initially meet the listing requirements and other applicable rules of the Nasdaq Capital Market, we may not be able to continue to satisfy these requirements and applicable rules. If we are unable to satisfy the Nasdaq Capital Market criteria for maintaining our listing, our securities could be subject to delisting.

If the Nasdaq Capital Market does not list our securities, or subsequently delists our securities from trading, we could face significant consequences, including:

Our board of directors may decline to register transfers of Class A Ordinary Shares in certain circumstances.

Except in connection with the settlement of trades or transactions entered into through the facilities of a stock exchange or automated quotation system on which our Class A Ordinary Shares are listed or traded from time to time, our board of directors may, in its sole discretion, decline to register any transfer of any Class A Ordinary Share which is not fully paid up or on which we have a lien.

Where the Class A Ordinary Shares are not listed on or subject to the rules of Nasdaq Capital Market, our board of directors may, in its absolute discretion, decline to register any transfer of any Class A Ordinary Share that has not been fully paid up, whom it does not approve or is subject to a company lien. Our board of directors may also decline to register any transfer of such Class A Ordinary Share unless:

If our directors refuse to register a transfer, they are required, within two months after the date on which the instrument of transfer was lodged, to send to each of the transferor and the transferee notice of such refusal.

The registration of transfers may, on 14 days’ notice being given by advertisement in such one or more newspapers or by electronic means, be suspended and the register closed at such times and for such periods as our board of directors may from time to time determine, provided, however, that the registration of transfers shall not be suspended nor the register closed for more than 30 days in any year.

This, however, is unlikely to affect market transactions of the Class A Ordinary Shares purchased by investors in the public offering. Once the Class A Ordinary Shares have been listed, the legal title to such Class A Ordinary Shares and the registration details of those Class A Ordinary Shares in the Company’s register of members will remain with DTC/Cede & Co. All market transactions with respect to those Class A Ordinary Shares will then be carried out without the need for any kind of registration by the directors, as the market transactions will all be conducted through the DTC systems.

The laws of the Cayman Islands may not provide our shareholders with benefits comparable to those provided to shareholders of corporations incorporated in the United States.

We are a Cayman Islands exempted company with limited liability. Our corporate affairs are governed by our Articles of Association (as may be amended and restated from time to time) and by the laws of the Cayman Islands. The rights of shareholders and the responsibilities of members of our board of directors may be different from the rights of shareholders and responsibilities of directors in companies governed by the laws of U.S. jurisdictions. In particular, as a matter of Cayman Islands law, directors of a Cayman Islands company owe fiduciary duties to the company and separately a duty of care, diligence and skill to the company. Under Cayman Islands law, directors and officers owe the following fiduciary duties: (i) a duty to act in good faith in what the director or officer believes to be in the best interests of the company as a whole; (ii) a duty to exercise powers for the purposes for which those powers were conferred and not for a collateral purpose; (iii) directors should not improperly fetter the exercise of future discretion; (iv) a duty to exercise powers fairly as between different sections of shareholders; (v) a duty to exercise independent judgment; and (vi) a duty not to put themselves in a position in which there is a conflict between their duty to the company and their personal interests. Our Articles of Association have varied this last obligation by providing that a director must disclose the nature and extent of his or her interest, including those that may be a material interest, in any contract or arrangement, and following such disclosure and subject to any restriction/disqualification where the interest is material or any separate requirement under applicable law or the listing rules of the Nasdaq, and unless disqualified by the chairperson of the relevant meeting, such director may vote in respect of any transaction or arrangement in which he or she is interested and may be counted in the quorum at the meeting. Conversely, under Delaware corporate law, a director has a fiduciary duty to the corporation and its stockholders (made up of two components) and the director’s duties prohibit self-dealing by a director and mandate that the best interest of the corporation and its shareholders take precedence over any interest possessed by a director, officer or controlling shareholder and not shared by the shareholders generally. See “Description of Share Capital —Differences in Corporate Law.”

You may be unable to present proposals before annual general meetings or extraordinary general meetings not called by shareholders.

Cayman Islands law provides shareholders with only limited rights to requisition a general meeting, and does not provide shareholders with any right to put any proposal before a general meeting. However, these rights may be provided in a company’s articles of association. Our Articles of Association allow our shareholders holding shares representing in aggregate not less than 10% of our voting share capital in issue, to requisition a general meeting of our shareholders, in which case our directors are obliged to call such meeting. Advance notice of at least 14 clear days’ notice in the case of an extraordinary general meeting and 10 clear days’ notice in the case of an annual general meeting is required unless shorter notice is agreed. A quorum required for a meeting of shareholders consists of at least one shareholder present or by proxy or (in the case of a shareholder being a corporation) by its duly authorized representative representing not less than one-third in nominal value of the total issued voting shares in the Company throughout the meeting shall form a quorum for all purposes.

Our pre-IPO shareholders will be able to sell their shares upon completion of this offering subject to restrictions under Rule 144 under the Securities Act.

Our pre-IPO shareholders, the “Beneficial Owners,” may be able to sell their Class A Ordinary Shares under Rule 144 after the completion of this offering. Because these shareholders have paid a lower price per Class A Ordinary Share than participants in this offering, when they are able to sell their pre-IPO shares under Rule 144, they may be more willing to accept a lower sales price than the IPO price. This fact could impact the trading price of the Class A Ordinary Shares following the completion of the offering, to the detriment of participants in this offering. We issued a total of 20,000,000 ordinary shares to the Beneficial Owners on February 15, 2019. On September 17, 2021, we re-designated our Ordinary Shares into Class A Ordinary Shares and Class B Ordinary Shares on an one-for-one basis. Immediately following this re-designation in 2021, there were 10,122,000 Class A Ordinary Shares issued and outstanding and 9,878,000 Class B Ordinary Shares, which were beneficially owned by Ms. Pingting Wang, our Chief Executive Officer and Chairperson, were issued and outstanding. On November 3, 2022, our shareholders and the Board of Directors adopted and approved an amendment to our amended and restated memorandum and articles of association to effectuate a reverse split of the then issued and outstanding shares at a ratio of one-for-four. As a result, 2,530,500 Class A Ordinary Shares and 2,469,500 Class B Ordinary Shares are issued as of the date of this prospectus. Under Rule 144, before the Beneficial Owners can sell their shares, in addition to meeting other requirements, they must meet the required holding period. We do not expect any of the issued Class A Ordinary Shares to be sold pursuant to Rule 144 during the pendency of this offering.

EU AML High-Risk Third Countries List

On March 13, 2022, the European Commission (“EC”) updated its list of ‘high-risk third countries’ (“EU AML List”) identified as having strategic deficiencies in their anti-money laundering/counter-terrorist financing regimes to add nine countries, including the Cayman Islands. The EC has noted it is committed to there being a greater alignment between the EU AML List and the FATF listing process. The addition of the Cayman Islands to the EU AML List is a direct result of the inclusion of the Cayman Islands on the FATF grey list in February 2021. It is unclear how long this designation will remain in place and what ramifications, if any, the designation will have for the Company.

The Financial Action Task Force has increased monitoring of the Cayman Islands.

In February 2021, the Cayman Islands was added to the Financial Action Task Force (“FATF”) list of jurisdictions whose anti-money laundering practices are under increased monitoring, commonly referred to as the “FATF grey list.” When the FATF places a jurisdiction under increased monitoring, it means the country has committed to resolve swiftly the identified strategic deficiencies within agreed timeframes and is subject to increased monitoring during that timeframe. In its October 2021 plenary, the FATF recognized the progress made by the Cayman Islands to improve its anti-money laundering and counter-terrorist financing regime. Despite this recognition, it is still unclear how long this designation will remain in place and what ramifications, if any, the designation will have for the Company.

Compensation of Directors and Officers.

Under Cayman Islands law, the Company is not required to disclose compensation paid to our senior management on an individual basis and the Company has not otherwise publicly disclosed this information elsewhere. The executive officers, directors and management of the Company receive fixed and variable compensation. They also receive benefits in line with market practice. The fixed component of their compensation is set on market terms and adjusted annually. The variable component consists of cash bonuses and awards of shares (or the cash equivalent). Cash bonuses are paid to executive officers and members of management based on previously agreed targets for the business. Shares (or the cash equivalent) are awarded under share options.

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements that reflect our current expectations and views of future events, all of which are subject to risks and uncertainties. Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. You can find many (but not all) of these statements by the use of words such as “approximates,” “believes,” “hopes,” “expects,” “anticipates,” “estimates,” “projects,” “intends,” “plans,” “will,” “would,” “should,” “could,” “may” or other similar expressions in this prospectus. These statements are likely to address our growth strategy, financial results and product and development programs. You must carefully consider any such statements and should understand that many factors could cause actual results to differ from our forward-looking statements. These factors may include inaccurate assumptions and a broad variety of other risks and uncertainties, including some that are known and some that are not. No forward-looking statement can be guaranteed and actual future results may vary materially. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to:

We describe material risks, uncertainties and assumptions that could affect our business, including our financial condition and results of operations, under “Risk Factors.” We base our forward-looking statements on our management’s beliefs and assumptions based on information available to our management at the time the statements are made. We caution you that actual outcomes and results may, and are likely to, differ materially from what is expressed, implied or forecast by our forward-looking statements. Accordingly, you should be careful about relying on any forward-looking statements. Except as required under the federal securities laws, we do not have any intention or obligation to update publicly any forward-looking statements after the distribution of this prospectus, whether as a result of new information, future events, changes in assumptions, or otherwise.

Industry Data and Forecasts

This prospectus contains data related to the vegetable oil industry in China. These industry data include projections that are based on a number of assumptions, which have been derived from industry and government sources which we believe to be reasonable. The vegetable oil industry may not grow at the rate projected by industry data, or at all. The failure of this industry to grow as anticipated is likely to have a material adverse effect on our business and the market price of our Class A Ordinary Shares. Furthermore, if any one or more of the assumptions underlying the industry data turns out to be incorrect, actual results may, and are likely to, differ from the projections based on these assumptions.

ENFORCEABILITY OF CIVIL LIABILITIES

We are incorporated under the laws of the Cayman Islands as an exempted company with limited liability. We are incorporated under the laws of the Cayman Islands because of certain benefits associated with being a Cayman Islands company, such as political and economic stability, an effective judicial system, a favorable tax system, the absence of foreign exchange control or currency restrictions and the availability of professional and support services. However, the Cayman Islands has a less developed body of securities laws as compared to the United States and provides significantly less protection for investors than the United States and provide protections to investors to a significantly lesser extent.

Substantially all of our assets are located in the PRC. In addition, all of our directors and officers are nationals or residents of the PRC and all or substantial portions of their assets are located outside the United States. As a result, it may be difficult for investors to effect service of process within the United States upon us or these persons, or to enforce against us or them judgments obtained in United States courts, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States.

We have appointed Puglisi & Associates as our agent to receive service of process with respect to any action brought against us in the United States District Court for the Southern District of New York under the federal securities laws of the United States or of any state in the United States or any action brought against us in the Supreme Court of the State of New York in the County of New York under the securities laws of the State of New York.

Conyers Dill &Pearman LLP, our counsel with respect to the laws of the Cayman Islands, and Beijing Docvit Law Firm, our counsel with respect to PRC law, have advised us that there is uncertainty as to whether the courts of the Cayman Islands or the PRC would (i) recognize or enforce judgments of United States courts obtained against us or our directors or officers predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States or (ii) entertain original actions brought in the Cayman Islands or the PRC against us or our directors or officers predicated upon the securities laws of the United States or any state in the United States.

Our Cayman Islands counsel has informed us that the uncertainty with regard to Cayman Islands law relates to whether a judgment obtained from the United States courts under civil liability provisions of the securities laws will be determined by the courts of the Cayman Islands as penal or punitive in nature. If such a determination is made, the courts of the Cayman Islands will not recognize or enforce the judgment against a Cayman Islands’ company. Because the courts of the Cayman Islands have yet to rule on whether such judgments are penal or punitive in nature, it is uncertain whether they would be enforceable in the Cayman Islands.

Our Cayman Islands counsel has further advised us that a final and conclusive judgment in the federal or state courts of the United States under which a sum of money is payable, other than a sum payable in respect of taxes, fines, penalties or similar charges, may be subject to enforcement proceedings as a debt in the courts of the Cayman Islands under the common law doctrine of obligation.

Beijing Docvit Law Firm has further advised us that the recognition and enforcement of foreign judgments are provided for under the PRC Civil Procedure Law. PRC courts may recognize and enforce foreign judgments in accordance with the requirements of the PRC Civil Procedure Law based either on treaties between China and the country where the judgment is made or on reciprocity between jurisdictions. Beijing Docvit Law Firm has advised us further that there are no treaties or other forms of reciprocity between China and the United States for the mutual recognition and enforcement of court judgments, thus making the recognition and enforcement of a U.S. court judgment in China difficult.

USE OF PROCEEDS

We estimate that we will receive net proceeds from this offering of approximately $4,370,164, assuming no over-allotment option is exercised, and approximately $5,237,352, assuming the over-allotment option is exercised in full, after deducting the estimated underwriting discounts and the estimated offering expenses payable by us and based upon an assumed initial public offering price of US$5 per Class A Ordinary Share, which is the midpoint of the price range as set forth on the cover page of this prospectus.

We plan to use the net proceeds we receive from this offering for the following purposes:

The foregoing represents our current intentions based upon our present plans and business conditions to use and allocate the net proceeds of this offering. Our management, however, will have significant flexibility and discretion to apply the net proceeds of this offering. If an unforeseen event occurs or business conditions change, we may use the proceeds of this offering differently than as described in this prospectus. To the extent that the net proceeds we receive from this offering are not immediately used for the above purposes, we intend to invest our net proceeds in short-term, interest-bearing bank deposits or debt instruments.

As an offshore holding company, we are permitted under PRC laws and regulations to provide funding to our PRC subsidiary through loans or capital contributions, subject to applicable regulatory approvals. We currently cannot make loans or capital contributions to our PRC subsidiary without first obtaining regulatory approvals, and if we decide to use the proceeds from this offering within the PRC, we cannot assure you that we will be able to obtain these regulatory approvals on a timely basis, if at all. See “Risk Factors—Risks Relating to Doing Business in the PRC—PRC regulation of parent/subsidiary loans and direct investment by offshore holding companies to PRC entities may delay or prevent us from using the proceeds of this offering to make loans or additional capital contributions to our PRC operating subsidiaries, which could materially and adversely affect our liquidity and our ability to fund and expand our business.”

DIVIDEND POLICY

We intend to keep any future earnings to finance the expansion of our business, and we do not anticipate that any cash dividends will be paid in the foreseeable future.

Under Cayman Islands law and our Articles of Association, a Cayman Islands company may pay a dividend on its shares out of either profit or share premium amount, provided that in no circumstances may a dividend be paid if this would result in the company being unable to pay its debts due in the ordinary course of business. According to our Articles of Association, dividends can be declared and paid out of funds lawfully available to us, which include the share premium account. Dividends, if any, would be paid in proportion to the number of Class A Ordinary Shares a shareholder holds. For further information, see “Taxation — Cayman Islands Taxation.”

If we determine to pay dividends on any of our Class A Ordinary Shares in the future, as a holding company, we will be dependent on receipt of funds from our Hong Kong subsidiary, Ruiyuan HK.

Current PRC regulations permit our indirect PRC subsidiary to pay dividends to Ruiyuan HK only out of their accumulated profits, if any, determined in accordance with Chinese accounting standards and regulations. In addition, each of our subsidiaries in China is required to set aside at least 10% of its after-tax profits each year, if any, to fund a statutory reserve until such reserve reaches 50% of its registered capital. Each of such entity in China is also required to further set aside a portion of its after-tax profits to fund the employee welfare fund, although the amount to be set aside, if any, is determined at the discretion of its board of directors. Although the statutory reserves can be used, among other ways, to increase the registered capital and eliminate future losses in excess of retained earnings of the respective companies, the reserve funds are not distributable as cash dividends except in the event of liquidation.

The PRC government also imposes controls on the conversion of RMB into foreign currencies and the remittance of currencies out of the PRC. Therefore, we may experience difficulties in completing the administrative procedures necessary to obtain and remit foreign currency for the payment of dividends from our profits, if any. Furthermore, if our subsidiaries and affiliates in the PRC incur debt on their own in the future, the instruments governing the debt may restrict their ability to pay dividends or make other payments. If we or our subsidiaries are unable to receive all of the revenues from our operations through the current contractual arrangements, we may be unable to pay dividends on our Class A Ordinary Shares.

Cash dividends, if any, on our Class A Ordinary Shares will be paid in U.S. dollars. Ruiyuan HK may be considered a non-resident enterprise for tax purposes, so that any dividends WFOE pays to Ruiyuan HK may be regarded as China-sourced income and as a result may be subject to PRC withholding tax at a rate of up to 10%. See “Taxation—People’s Republic of China Enterprise Taxation.”

In order for us to pay dividends to our shareholders, we will rely on payments made from Aokai Fa to WFOE, pursuant to contractual arrangements between them, and the distribution of such payments to Ruiyuan HK as dividends from Aokai Fa. Certain payments from our Aokai Fa to WFOE are subject to PRC taxes, including business taxes and VAT. In addition, if Aokai Fa or its subsidiaries or branches incur debt on their own behalves in the future, the instruments governing the debt may restrict its ability to pay dividends or make other distributions to us.

Pursuant to the Arrangement between Mainland China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and Tax Evasion on Income, or the Double Tax Avoidance Arrangement, the 10% withholding tax rate may be lowered to 5% if a Hong Kong resident enterprise owns no less than 25% of a PRC project. However, the 5% withholding tax rate does not automatically apply and certain requirements must be satisfied, including without limitation that (a) the Hong Kong project must be the beneficial owner of the relevant dividends; and (b) the Hong Kong project must directly hold no less than 25% share ownership in the PRC project during the 12 consecutive months preceding its receipt of the dividends. In current practice, a Hong Kong project must obtain a tax resident certificate from the Hong Kong tax authority to apply for the 5% lower PRC withholding tax rate. As the Hong Kong tax authority will issue such a tax resident certificate on a case-by-case basis, we cannot assure you that we will be able to obtain the tax resident certificate from the relevant Hong Kong tax authority and enjoy the preferential withholding tax rate of 5% under the Double Taxation Arrangement with respect to dividends to be paid by our PRC subsidiary to its immediate holding company, Ruiyuan HK. As of the date of this prospectus, we have not applied for the tax resident certificate from the relevant Hong Kong tax authority. Ruiyuan HK intends to apply for the tax resident certificate when WFOE plans to declare and pay dividends to Ruiyuan HK. See “Risk Factors — There are significant uncertainties under the EIT Law relating to the withholding tax liabilities of our PRC subsidiary, and dividends payable by our PRC subsidiary to our offshore subsidiaries may not qualify to enjoy certain treaty benefits” starting on page 26 of this prospectus for more information.

CAPITALIZATION

The following table sets forth our capitalization as of September 30, 2022:

You should read this capitalization table in conjunction with “Use of Proceeds,” “Selected Consolidated Financial and Operating Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and the related notes appearing elsewhere in this prospectus.

On an as adjusted basis to reflect the issuance and sale of 1,250,000 Class A Ordinary Shares by us in this offering and assuming the over-allotment option is exercised in full at the initial public offering price of US$5 per Class A Ordinary Share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting the estimated discount to the underwriters and the estimated offering expenses payable by us.

DILUTION

If you invest in our Class A Ordinary Shares, your interest will be diluted for each Class A Ordinary Share you purchase to the extent of the difference between the initial public offering price per Class A Ordinary Share and our net tangible book value per both Class A and Class B Ordinary Share after this offering. Dilution results from the fact that the initial public offering price per Class A Ordinary Share is substantially in excess of the net tangible book value per both Class A and Class B Ordinary Share attributable to the existing shareholders for our presently outstanding both Class A and Class B Ordinary Shares.

Holders of Class A Ordinary Shares and Class B Ordinary Shares have the same rights except for voting and conversion rights. In respect of matters requiring a vote of all shareholders, each holder of Class A Ordinary Shares will be entitled to one (1) vote per one Class A Ordinary Share and each holder of Class B Ordinary Shares will be entitled to twenty (20) votes per one Class B Ordinary Share. The Class A Ordinary Shares are not convertible into shares of any other class. The Class B Ordinary Shares are convertible into Class A Ordinary Shares at any time after issuance at the option of the holder on a one-to-one basis. The Class B Ordinary Shares are not being converted as part of this offering.

Our net tangible book value as of September 30, 2022, was US$20,331,216 or US$4.07 per ordinary share (both Class A and Class B Ordinary Share). Net tangible book value represents the amount of our total consolidated tangible assets, less the amount of our total consolidated liabilities. Dilution is determined by subtracting the as adjusted net tangible book value per ordinary share (both Class A and Class B Ordinary Share) from the initial public offering price per Class A Ordinary Share and after deducting the estimated discount to the underwriters and the estimated offering expenses payable by us.

Without taking into account any other changes in net tangible book value after September 30, 2022, other than to give effect to our sale of 1,250,000 Class A Ordinary Shares offered in this offering (assuming no over-allotment option is exercised) based on the initial public offering price of US$5 per Class A Ordinary Share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deduction of the estimated discount to the underwriters and the estimated offering expenses payable by us, our as adjusted net tangible book value as of September 30, 2022, would have been US$24,701,480, or US$3.95 per outstanding ordinary shares (both Class A and Class B Ordinary Share). This represents an immediate decrease in net tangible book value of US$0.12 per ordinary share (both Class A and Class B Ordinary Share) to the existing shareholders, and an immediate dilution of US$1.05 per Class A Ordinary Share to investors purchasing Class A Ordinary Shares in this offering. The as adjusted information discussed above is illustrative only. The following table illustrates such dilution:

A US$1.00 increase in the assumed public offering price of US$5 per Class A Ordinary Share would increase our pro forma net tangible book value per both Class A and Class B Ordinary Share after giving effect to the offering by US$1.16 million, and increase the pro forma net tangible book value per both Class A and Class B Ordinary Share attribute to new investors in this offering by US$0.19, assuming no change to the number of Class A Ordinary Shares offered by us as set forth on the cover page of this prospectus, and after deducting underwriting discounts and estimated offering expenses. A US$1.00 decrease in the assumed public offering price of US$5 per Class A Ordinary Share would decrease our pro forma net tangible book value per both Class A and Class B Ordinary Share after giving effect to the offering by US$1.16 million, and decrease the pro forma net tangible book value per both Class A and Class B Ordinary Share attribute to new investors in this offering by US$0.19, assuming no change to the number of Class A Ordinary Shares offered by us as set forth on the cover page of this prospectus, and after deducting underwriting discounts and estimated offering expenses.

The pro forma information discussed above is illustrative only. Our net tangible book value following the completion of this offering is subject to adjustment based on the actual initial public offering price of our Class A Ordinary Share and other terms of this offering determined at pricing.

The following table summarizes, on an as adjusted basis as of September 30, 2022, the differences between existing shareholders and the new investors, the total consideration paid and the average price per Class A Ordinary Share before deducting the estimated discount to the underwriters and the estimated offering expenses payable by us.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes included elsewhere in this prospectus. This discussion contains forward-looking statements reflecting our current expectations that involve risks and uncertainties. See “Disclosure Regarding Forward-Looking Statements” for a discussion of the uncertainties, risks and assumptions associated with these statements. Actual results and the timing of events could differ materially from those discussed in our forward-looking statements as a result of many factors, including those set forth under “Risk Factors” and elsewhere in this prospectus.

Overview

Incorporated on February 15, 2019, we are an offshore holding company conducting our operations in China through the VIE, Aokai Fa. This is an offering of the Class A Ordinary Shares of the Cayman Islands holding company. You are not investing in Aokai Fa. Neither we nor our subsidiaries own any share in Aokai Fa. WFOE, Aokai Fa and its shareholders entered into a series of VIE Agreements, pursuant to which, we are regarded as the primary beneficiary of Aokai Fa for accounting purpose, and, therefore, we are able to consolidate the financial results of Aokai Fa in our consolidated financial statements in accordance with U.S. GAAP. However, neither we nor our subsidiaries own any share in Aokai Fa, and that the investors will not and may never directly hold equity interests in the VIE either. The VIE structure cannot completely replicate a foreign investment in China-based companies. Instead, the VIE structure provides contractual exposure to foreign investment in us. Because of our corporate structure, we are subject to risks due to uncertainty of the interpretation and the application of the PRC laws and regulations, including but not limited to limitation on foreign ownership of internet technology companies, and regulatory review of oversea listing of PRC companies through a special purpose vehicle, and the validity and enforcement of the VIE Agreements because they have not been tested in a court of law.

We engage in the Camellia Oil business mainly in China through VIE Agreements with Aokai Fa. Established in 2011 in Tangchi Town, Shucheng County in Anhui Province, Aokai Fa is one of the largest producers of Camellia Oil at a large scale in Anhui and has become a leading enterprise in forestry and agricultural sector in Anhui. Our product mix consists of Camellia Oil and its by-products. From the beginning of establishment, we have been dedicating ourselves to sourcing high-quality, organic, and traceable raw materials, improving production processes, and selling our high-quality products to 19 cities in China. Our goal is to become a leading national Camellia Oil producer as well as to develop “Aokai Fa” as a leading brand in the PRC to maximize our shareholders’ value.

Camellia Oil contains a high level of unsaturated fatty acid and has a similar nutritional structure compared to olive oil. It has a higher smoke point as compared to olive oil, which makes itself better suited for cooking styles in Chinese families. More importantly, under the backdrop of an aging society, the consumers become more aware of being healthy than ever. Therefore, we believe, Camellia Oil will be the alternative, organic, and health edible oil that fits the consumers’ needs and has a potentially huge market that we can tap into. In the future, we aim to develop more midrange and upmarket products to expand the product mix as well as to improve the brand image.

Other than continuously improving the quality of our products, we maintain excellent partnerships with our suppliers to source fine-grade raw materials. Through the course of our development, we have preliminarily achieved eco-friendly sourcing of raw material. Also, we implement a vertically integrated system to maintain strict control to ensure high quality of the products.

We are also constantly investing in and improving our production technologies and processes. As of September 30, 2022, the VIE owns 13 patents regarding our production techniques, machinery improvement, packaging techniques.

We maintain a strong and expanding customer base through different channels of merchandising, including direct selling, sales exhibition, and distributors, etc. As of the date of this prospectus, the Company has over 20 sales agents nationwide covering Beijing, Guangxi, Fujian, etc., and also export our goods to areas like Taiwan, Hong Kong, and Southeast Asia.

Over the years, the Company has maintained stable revenues and net income. For the years ended September 30, 2022 and 2021, the Company had revenue of $19,829,224 and $18,540,385, and net income of $3,435,613 and $2,362,859, respectively.

We will be subject to the reporting requirements of the U.S. Securities Exchange Act of 1934, as amended, or the Exchange Act, the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) as well as rules and regulations of Nasdaq Stock Exchange after the completion of this offering. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal controls over financial reporting. We are required by Section 404 of the Sarbanes-Oxley Act to perform system and process evaluation and testing of our internal controls over financial reporting to allow management to report on the effectiveness of our internal controls over financial reporting in our Form 20-F beginning with our annual report in our second annual report after becoming a public company. The control deficiency in our ability to properly record sales rebates is a material weakness in both our disclosure controls and procedures and our internal control over financial reporting. Our internal accounting staff are not experienced in the application of U.S. GAAP. We have an inadequate number personnel in China with the requisite expertise in generally accepted accounting principles to ensure the proper application thereof. We plan to continue to take remedial measures including (i) hiring more qualified accounting personnel with relevant U.S. GAAP and SEC reporting experience and qualifications to strengthen the financial reporting function and to set up a financial and system control framework; (ii) implementing regular and continuous U.S. GAAP accounting and financial reporting training programs for our accounting and financial reporting personnel; (iii) setting up an internal audit function as well as engaging an external consulting firm to assist us with assessment of Sarbanes-Oxley compliance requirements and improvement of overall internal control; and (iv) appointing independent directors, establishing an audit committee, and strengthening corporate governance. However, the implementation of these measures may not fully address the material weaknesses in our internal control over financial reporting. Our failure to correct the material weaknesses or our failure to discover and address any other material weaknesses or control deficiencies could result in inaccuracies in our financial statements and could also impair our ability to comply with applicable financial reporting requirements and related regulatory filings on a timely basis.

COVID-19’s Impact

The COVID-19 pandemic has had a great impact in China since its outbreak in January 2020. From 2020 to 2022, the Chinese government has implemented strict measures to contain the virus, including lockdowns, travel restrictions, and mass testing. In 2021, Anhui Province found more local COVID-19 cases. Since Anhui Province has been successful in its efforts to contain the spread of the virus, we have not observed a significant impact to logistics, suppliers, and price of raw materials. Since December 2022, the Chinese government issued new guidelines easing some of its strict zero-COVID policies. The COVID-19 pandemic has had limited impact on our businesses and operation.

On the production side, Aokai Fa did not encounter a shortage of labor due to the impacts of COVID-19. As of the date of this prospectus, Aokai Fa’s is running at all of its production capacity as usual and is able to fulfill customers’ needs. On the sales side, currently Aokai Fa’s sales are mainly from Anhui province, Jiangsu province, Guangdong province, Jiangxi province, Shanxi province, Fujian province, Shandong province, Zhejiang province, and Shanghai. Due to the negative impacts of COVID-19 pandemic to the general economic conditions in China and to the customers of the Company, collection of accounts receivable is delayed. On March 28, 2022, the Company extended the AR collection period from 3 months to 5 months. The Company expects that this can encourage customers to sell more products and stabilize the market. 93% of accounts receivable balances as of September 30, 2022 were collected by the end of February 2023.

In early December 2022, China announced a nationwide loosening of its zero-covid policy, and the country may face a wave in infections after the lifting of these restrictions. The impact of COVID-19 pandemic still depends on the future developments of the pandemic, including new information concerning the global severity of and actions taken to contain the pandemic, or the appearance of new or more severe strains of the virus, which are highly uncertain and unpredictable. Therefore, while we do not expect the COVID-19 pandemic to negatively impacting our business, results of operations, and financial position, the related financial impact cannot be reasonably estimated at this time. 

Consolidation

The Company conducts substantially all of its business in China via Aokai Fa, due to PRC legal restrictions of foreign ownership in certain sectors. Substantially all of the Company’s revenues, costs and net income in China are directly or indirectly generated through the VIE. The Company has signed various agreements with the VIE and the shareholders of the VIE to allow the transfer of economic benefits from the VIE to the Company and to direct the activities of the VIE. 

Total assets and liabilities presented on the Company’s consolidated balance sheets and revenue, expense, net income presented on consolidated statements of comprehensive income as well as the cash flow from operating, investing and financing activities presented on the consolidated statements of cash flows are substantially the financial position, operation and cash flow of the Company’s VIE. The Company has not provided any financial support to the VIE as of and for the years ended September 30, 2022 and 2021. As of September 30, 2022 and September 30, 2021, the variable interest entity accounted for approximately all of our total assets and total liabilities. As of September 30, 2022 and September 30, 2021, $25,302 and $108,383 of cash and restricted cash were denominated in RMB, respectively. The following table sets forth the assets, liabilities, results of operations and changes in cash and restricted cash of the VIE, which were included in the Company’s consolidated balance sheets, statements of comprehensive income and statements of cash flows with intercompany transactions eliminated:

Results of Operations for the Years Ended September 30, 2022 and 2021  

The following table summarizes the results of our operations during the years ended September 30, 2022 and 2021, respectively, and provides information regarding the dollar and percentage increase or (decrease) during such periods.

Revenue

Revenue in USD increased by $1,288,839, or 6.95%, to $19,829,224 in year ended September 30, 2022 from $18,540,385 in year ended September 30, 2021. Revenue in RMB increased by RMB 9,298,873, or 7.71% to RMB 129,944,869 in year ended September 30, 2022 from RMB 120,645,996 in year ended September 30, 2021. The depreciation of RMB in the year ended September 30, 2022 contributed to a 0.76% decrease of total revenue in USD, as compared with the year ended September 30, 2021. The increase of revenue in RMB was primarily due to the increase in sales for Camellia Oil products and oil cakes products. Revenue of Camellia Oil in RMB increased by approximately RMB 6,003,000 in the year ended September 30, 2022 compared with the year ended September 30, 2021. Revenue of Oil Cakes in RMB increased by approximately RMB 3,296,000 in the year ended September 30, 2022 compared with the year ended September 30, 2021.

The increase in revenue for Camellia Oil products in the year ended September 30, 2022 compared with revenue in the year ended September 30, 2021 is primarily due to increased revenue from new distributors and increased sales by existing distributors. We developed two new distributors in recent years, whose sales amounted to approximately $2,788,000 in the year ended September 30, 2022. The sales amount in Shanxi province, Guangdong province, Jiangxi province and Hebei province in the year ended September 30, 2022, increased by 466.0%, 34.6%, 74.6% and 121.6% compared with the same period last year, respectively. Increase of revenue in these provinces is due to better acceptance of Camelia Oil by the market.

In the upcoming fiscal year ending September 30, 2023, the Company plans to upgrade its products to provide high-end and higher value choices to its customers. This could potentially lead to a higher price per customer transaction and drive up the top-line revenues.

Cost of goods sold

Our cost of goods sold increased by $24,707 or 0.16% to $15,171,398 in year ended September 30, 2022 from $15,146,691 in year ended September 30, 2021. As a percentage of revenue, the costs of goods sold were 76.51% and 81.70% for the years ended September 30, 2022 and 2021, respectively.

The increase in cost of goods sold was primarily due to increase of sales in year ended September 30, 2022 compared with year ended September 30, 2021.

Gross profit

Our gross profit increased by $1,264,132, or 37.25%, to $4,657,826 in year ended September 30, 2022 from $3,393,694 in year ended September 30, 2021. The increase in gross profit was primarily due to increase of sales in year ended September 30, 2022 compared with year ended September 30, 2021.

The gross margin was 23.49% in year ended September 30, 2022, as compared with 18.30% in year ended September 30, 2021. The increase of 5.19% point was primarily attributed to increased sales unit price, and increased sales of high profit products in year ended September 30, 2022 when compared to year ended September 30, 2021.

The Company will make further steps to improve the gross margin. The Company plans to invest in production machinery and develop more patented production techniques to improve oil yield and production efficiency, ultimately to decrease the unit production cost. Besides, the Company plans to enter the midrange and high-end market, expanding the current product scheme to increase the overall gross margin of the products.

Selling expenses

Selling expenses increased by $40,927, or 23.82% to $212,745 in year ended September 30, 2022 compared to $171,818 in year ended September 30, 2021. As a percentage of sales, our selling expenses were 1.07% and 0.93% in years ended September 30, 2022 and 2021, respectively. The increase in selling expenses is mainly attributed to increased shipping cost.

General and administrative expenses

Our general and administrative expenses decreased by $19,422 or 3.84%, to $486,880 in year ended September 30, 2022 from $506,302 in year ended September 30, 2021. As a percentage of revenues, general and administrative expenses were 2.46% and 2.73% in years ended September 30, 2022 and 2021, respectively. The decrease in general and administrative expenses is mainly attributed to decreased utilities and professional expenses, partially offset by increased travel expenses and salary for management team.

Loss on disposal of property and equipment

Loss on disposal of property and equipment decreased by $166,895 in year ended September 30, 2022 from $168,676 in the year ended September 30, 2021. During the year ended September 30, 2022 and 2021, the Company recorded a loss of $1,781 and $168,676 on disposal of unused equipment, respectively.

Subsidy income 

Our government subsidy income was $46,951 in year ended September 30, 2022 compared to $56,548 in year ended September 30, 2021. Our government subsidy income was all granted by local governments in recognizing our achievements in various areas.

Foreign currency translation gain/loss

The functional currency of our operating subsidiary and VIE in Anhui Province, China is RMB whereas our financial statements are expressed in USD. We translate results of operations and cash flows at average FX during the period, assets and liabilities at the unified exchange rate at the end of the period, and equity at historical exchange rates.

The Company recorded foreign currency translation (loss)gain of $(2,055,869) and $868,058 in years ended September 30, 2022 and 2021, respectively.

Income before provision for income taxes

Our income before provision for income taxes was $4,003,371 in year ended September 30, 2022, an increase of $1,399,925 or 53.77% compared with $2,603,446 in year ended September 30, 2021. The increase was primarily attributable to increased gross profit and sales.

Provision for income taxes

Our income taxes expense was $567,758 in year ended September 30, 2022, increase of $327,171 or 135.99% when compared with income tax expense of $240,587 in year ended September 30, 2021. The increase of income taxes was due to increase of taxable income in year ended September 30, 2022 comparing with last year. The Company’s operating VIE, Aokai Fa, is incorporated in the PRC and was subject to corporate income tax at a statutory rate of 25% for calendar years until 2019. In August 2020, under the Provisional Regulations of the People’s Republic of China Concerning Income Tax on Enterprises promulgated by the PRC, Aokai Fa was approved for a 15% corporate income tax rate because it is qualified as a high technology and science enterprise. The 15% corporate income tax rate is effective for three calendar years from 2020 to 2022.

Liquidity and Capital Resources

Cash Flows for the Fiscal Year Ended September 30, 2022 Compared to the Fiscal Year Ended September 30, 2021

The following table sets forth summary of our cash flows from operations for the periods indicated:

Operating Activities

Net cash provided by operating activities was $455,626 in year ended September 30, 2022, a decrease of $1,865,530 compared to cash provided by operating activities of $2,321,156 in year ended September 30, 2021. The decrease in net cash provided by operating activities was primarily attributable to an increase in net income, accounts receivable and advance to suppliers, offset by a decrease in inventory.

Investing Activities

Net cash used in investing activities was $426,814 in year ended September 30, 2022, a decrease of $1,995,580 from net cash used in investing activities of $2,422,394 in year ended September 30, 2021. The decrease is mainly due to the Company made deposit of $427,272 for property purchase in the year end September 30, 2022, compared with $2,424,699 in the year ended September 30, 2021.

Financing Activities

Net cash used in financing activities was $88,811 in year ended September 30, 2022, compared to $53,513 net cash provided from financing activities in year ended September 30, 2021. The decrease in net cash provided from financing activities in 2022 was primarily attributable to $91,558 payments made on behalf of related parties in year ended September 30, 2022, compared with $60,994 proceeds from related parties in year ended September 30, 2021.

Capital Expenditures

We had capital expenditures of approximately $427,272 and $2,424,699 for the years ended September 30, 2022 and 2021, respectively. Most of the amount were the payments for purchase deposit in connection with the property purchase agreement.

On December 18, 2019, the Company entered into a purchase agreement to purchase land and building with an unrelated party. The Company is currently leasing certain part of the building for its office and operating facilities from the same landlord. Total purchase price is RMB96,800,000 (approximately $13,608,000). Based on the purchase agreement, the Company will pay RMB 2,500,000 (approximately $351,000) before December 31, 2019 and the balance will be paid monthly by December 31, 2022.

On January 6, 2020, the Company entered into a supplement agreement to add additional terms to the purchase agreement dated December 18, 2019. Based on the supplement agreement, both parties agreed that the land and building certificates will be transferred to the Company once the Company pays 70% of total purchase price which is approximately $9.5 million (RMB67,760,000). Before transferring the land and building certificates to the Company, the Company will continue to make rent payment as per current lease agreement.

On June 10, 2021, the Company entered into another supplement agreement to extend the payment deadline to December 31, 2024. According to this supplement agreement, the Company agreed to pay RMB58,080,000 (approximately $8,165,000) that is 60% of total purchase price by December 31, 2023 and agreed to pay the balance of RMB38,720,000 (approximately $5,443,000) that is 40% of total purchase price by December 31, 2024. Both parties also agreed that the land and building certificates will be transferred to the Company once the Company pays 60% of total purchase price.

On September 9, 2021, the Company signed a third supplemental agreement to clarify the following terms: The Company has the right to cancel the purchase agreement before title is transferred. The Company is entitled to a refund of all payments made if the purchase agreement is cancelled. Once the title of the property is transferred to the Company, the Company will then have an obligation to make the remaining payments and the Company will record the property based on its total purchase price and the remaining payments as a liability in the financial statements.

Based on the purchase agreement, the Company made deposit of $3,940,114 (RMB28,028,000) and $3,915,324 (RMB25,228,000) as of September 30, 2022 and 2021, respectively.

On January 9, 2023, the Company signed a fourth supplemental agreement to modify the number of properties included in the purchase agreement. The purchase agreement dated December 18, 2019 cannot be fully fulfilled since certain properties included in the agreement were used as collaterals for bank loan by seller. Both parties reached the following terms through negotiation: All purchased buildings sold by the unrelated party to the Company will be at the purchase price of RMB26,831,300 (approximately $3.8 million). The unrelated party needs to refund the overpaid purchase deposit of RMB1,196,700 (approximately $168,000) before March 31, 2023. The title of the buildings has been transferred to the Company and the building certificates were received on January 19, 2023. As of the reporting date, the Company has received the refund.

Income Taxes

The enterprise income tax for Aokai Fa is calculated based on the statutory profit as defined in the PRC tax laws. The income tax returns for the years ended December 31, 2022, 2021 and 2020 are subject to examination by the tax authorities.

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets, including tax loss and credit carry forwards, and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of deferred tax assets and liabilities from a change in tax rates is recognized in income in the period that includes the enactment date. The deferred income tax expense represents the change during the period in the deferred tax assets and deferred tax liabilities. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Value Added Tax (“VAT”)

The Company is subject to VAT, which is levied on a majority of the products, at a rate of 9% on the invoiced value of sales depending on the type of products sold. The output VAT is borne by customers in addition to the invoiced value of sales and input VAT is borne by the Company in addition to the invoiced value of purchases.

The VAT may be offset by VAT paid by the Company on raw materials and other materials included in the cost of producing or acquiring its finished products. Further, when exporting goods, the exporter is entitled to some or all of the refund of the VAT paid or assessed.

All of the VAT returns of the Company remain subject to examination by the tax authorities for five years from the date of filing.

Fair Value of Financial Instruments

ASC 825-10 requires certain disclosures regarding the fair value of financial instruments. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three-level fair value hierarchy prioritizes the inputs used to measure fair value. The hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

The Company considers the recorded value of its financial assets and liabilities, which consist primarily of cash, accounts receivable, advance to suppliers, accounts payable and accrued expenses, and advances from customers approximate the fair value of the respective assets and liabilities at September 30, 2022 and 2021 based upon the short-term nature of the assets and liabilities.

Determining which category an asset or liability falls within the hierarchy requires significant judgment. The Company evaluates its hierarchy disclosures each quarter.

There are no financial instruments measured at fair value on a recurring basis.

New Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). This update will require the recognition of a right-of-use asset and a corresponding lease liability, initially measured at the present value of the lease payments, for all leases with terms longer than 12 months. For operating leases, the asset and liability will be expensed over the lease term on a straight-line basis, with all cash flows included in the operating section of the statement of cash flows. For finance leases, interest on the lease liability will be recognized separately from the amortization of the right-of-use asset in the statement of comprehensive income and the repayment of the principal portion of the lease liability will be classified as a financing activity while the interest component will be included in the operating section of the statement of cash flows. ASU 2016-02 is effective for interim and annual periods beginning after December 15, 2018 and requires a modified retrospective approach to adoption. Early adoption is permitted. In September 2017, the FASB issued ASU No. 2017-13, which to clarify effective dates that public business entities and other entities were required to adopt ASC Topic 842 for annual reporting. A public business entity that otherwise would not meet the definition of a public business entity except for a requirement to include or the inclusion of its financial statements or financial information in another entity’s filing with the SEC adopting ASC Topic 842 for annual reporting periods beginning after December 15, 2019, and interim reporting periods within annual reporting periods beginning after December 15, 2020. ASU No. 2017-13 also amended that all components of a leveraged lease be recalculated from the inception of the lease based on the revised after tax cash flows arising from the change in the tax law, including revised tax rates. The difference between the amounts originally recorded and the recalculated amounts must be included in income of the year in which the tax law is enacted. In November 2019, the FASB issued ASU No. 2019-10, by which to defer the effective date for all other entities by an additional year. In June 2020, the FASB issued ASU No. 2020-05, “Revenue from Contracts with Customers (Topic 606) and Leases (Topic 842) Effective Dates for Certain Entities” (“ASU 2020-05”) in response to the ongoing impacts to businesses in response to the coronavirus (COVID-19) pandemic. ASU 2020-05 provides a limited deferral of the effective dates for implementing previously issued ASU 606 and ASU 842 to give some relief to businesses and the difficulties they are facing during the pandemic. ASU 2020-05 affects entities in the “all other” category and public Not-For-Profit entities that have not gone into effect yet regarding ASU 2016-02, Leases (Topic 842). Entities in the “all other” category may defer to fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. The Company estimated that, if adopting ASC 842, the effect on the consolidated financial statements of the Company will be recording right of use assets, including prepaid rent of approximately $156,000 and operating lease liability of approximately $147,000 as of September 30, 2022.

In December 2019, the FASB issued ASU 2019-12, “Simplifying the Accounting for Income Taxes.” ASU 2019-12 eliminates certain exceptions within ASC 740, “Income Taxes,” and clarifies certain aspects of ASC 740 to promote consistency among reporting entities. ASU 2019-12 is effective for public business entities for interim and annual reporting periods beginning after December 15, 2020, with early adoption permitted. Most amendments within the standard are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis. The Company is evaluating the impact that adoption of ASU 2019-12 will have on its consolidated financial statements.

INDUSTRY

China Has a Large Potential Camellia Oil Market

In 2020, China’s demand for edible vegetable oil was 66.285 million tons. China’s edible vegetable oil industry is heavily dependent on importation. In 2021, China’s cumulative importation of edible vegetable oil was 11.315 million tons, representing a decrease of 2.37% from the year 2020. In 2021, the cumulative exportation of edible vegetable oil was 121,000 tons, a representing a decrease of 29.65% from the year 2020. However, soybean oil and canola oil remain the mainstream products in the consumer market and high-value oil products such as olive oil and camellia oil take only a small portion. We believe the market is still untapped and the potential remains large.

Edible Vegetable Oil Production and Consumption in China²

As the original plant species of China, it is widely distributed among the hills in the southern part of China. Given its long history, the manufacturing processes have been perfected over time and the industry has a solid manufacturing foundation. According to the PRC’s State Forestry and Grassland Administration, the camellia oil seeds planting area in China amounts to 68 million mu, with 14 million mu of high-yield oil-tea camellia forests, 627,000 tons of camellia oil, and the total output value of the camellia industry reaching 116 billion yuan in 2020.

Camellia Oleifera Seed and Oil Production in China³

Consumption Upgrading and Aging Population Indicates a Promising Future

According to the PRC National Bureau of Statistics in 2022, the national per capita disposable income of the PRC residents was US$5,185 (RMB 36,883), a nominal increase of 5.0% over the previous year, and a real increase of 2.9% after deducting price factors. The per capita disposable income of urban residents was US$6,928 (RMB 49,283), an increase of 3.9% (the following are nominal growth rates unless otherwise specified), and the actual increase was 1.9% after deducting price factors; the per capita disposable income of rural residents was US$2,830 (RMB 20,133), an increase of 6.3%, After deducting price factors, the actual increase was 4.2%. The increase in disposable personal income encourages people to consume more and, in the meantime, pay more attention to their health.

Camellia Oil’s targeted customer base consists of the elderly people and the housewives. From 2000 to 2021, the number of people older than 60 years old increased from 130 million to 264 million. The proportion of people older than 60 years old over the total population has increased from 10.5% in 2000 to 18.7%, the aging phenomenon is becoming clearer and clearer. It is estimated that by 2040, the proportion of elderly people aged 65 and over in the total population of China will exceed 20%. At the same time, the trend of aging of the elderly population is becoming more and more obvious: the elderly aged 80 and above are increasing at a rate of 5% per year, and will increase to more than 74 million by 2040.As an irreversible trend, the potential customer base is becoming larger and larger, therefore, we believe that the high-value edible vegetable oil will take a large portion of the edible vegetable oil market.

Number of People Older than 60⁵

Younger people are becoming the backbones of the consumers of Camellia Oil, and they are more willing to try new things compared to their parents’ generation. They have more diverse needs and more acute sense of healthy lifestyle. According to a survey, these customers value most the product’s flavor, then the nutrition, but least the price. All these features will push the demands of high-value oil products such as olive oil, camellia oil, and corn oil, etc.

Customers’ Considerations of Purchasing Oil⁶

BUSINESS

Overview

We are a Cayman Islands holding company conducting our operations in China through the variable interest entity, Aokai Fa. This is an offering of the Class A Ordinary Shares of the Cayman Islands holding company. You are not investing in Aokai Fa, the VIE. Neither we nor our subsidiaries own any share in Aokai Fa. WFOE, Aokai Fa and its shareholders entered into the VIE Agreements, pursuant to which we are regarded as the primary beneficiary of Aokai Fa for accounting purpose, and, therefore, we are able to consolidate the financial results of Aokai Fa in our consolidated financial statements in accordance with U.S. GAAP. The VIE structure cannot completely replicate a foreign investment in China-based companies. Instead, the VIE structure provides contractual exposure to foreign investment in us. Because of our corporate structure, we are subject to risks due to uncertainty of the interpretation and the application of the PRC laws and regulations, including but not limited to limitation on foreign ownership of internet technology companies, and regulatory review of oversea listing of PRC companies through a special purpose vehicle, and the validity and enforcement of the VIE Agreements because they have not been tested in a court of law.

We engage in the production and sales of Camellia Oil products in China through the VIE in the PRC. Aokai Fa was founded in 2011 in Tangchi town, Shucheng county of the Anhui province in China. It is a large-scale producer of Camellia Oil in the entire Anhui province, and now one of the leading enterprises of forestry and agricultural industrialization in Anhui, integrating scientific research, farming, production, and sales. Our goal is to become a leading Camellia Oil producer in the PRC and to develop “Aokai Fa” as a leading brand in the Camellia Oil industry in the PRC.

Aokai Fa guarantees the quality of its Camellia Oil through a vertically integrated system which starts from the farms all the way through production and sales. Aokai Fa has perfected the production process and holds multiple patents. The products are produced in a sterile environment where Aokai Fa maintains strict control over its products’ quality at a much higher level than the national testing standards.

We maintain a strong and growing customer base through different channels of merchandising, including direct selling, sales exhibition, and franchising, etc. As of date of this prospectus, the Company has over 20 sales agents nationwide covering provinces including Beijing, Guangxi, and Fujian. We also export our goods to areas like Taiwan, Hong Kong, and Southeast Asia.

Over the years, we have maintained stable revenues and net income. For the years ended September 30, 2022 and 2021, the Company had revenue of $19,829,224 and $18,540,385, respectively, and had net income of $3,435,613 and $2,362,859, respectively.

Corporate History and Structure

Huake Holding Biology Co., LTD is an exempted company incorporated with limited liability under the laws of the Cayman Islands on February 15, 2019. Huake wholly owns China Ruiyuan Holding Co., Ltd. (“Ruiyuan HK”), a company incorporated under the laws of the Hong Kong S.A.R. of the PRC on March 19, 2019. Ruiyuan HK is the sole shareholder of Anhui Zhonguiyuan Biotechnology Co., Ltd., a limited liability company formed under the laws of the PRC on May 24, 2019. Zhonguiyuan has entered into a series of VIE Agreements with Aokai Fa, a company established under the laws of the PRC on December 26, 2011, and Aokai Fa’s shareholders.

The following diagram illustrates our corporate structure as of the date of this prospectus and as of the closing of this offering (assuming no exercise of the over-allotment option):

Organizational chart

Contractual Arrangements between WFOE and Aokai Fa

Neither we nor our subsidiaries own any equity interest in Aokai Fa. WFOE, Aokai Fa and its shareholders entered into the VIE Agreements, pursuant to which we are regarded as the primary beneficiary of Aokai Fa for accounting purpose, and, therefore, we are able to consolidate the financial results of Aokai Fa in our consolidated financial statements in accordance with U.S. GAAP. However, the investors will not and may never directly hold equity interests in the VIE. The VIE structure cannot completely replicate a foreign investment in China-based companies. Instead, the VIE structure provides contractual exposure to foreign investment in us. Because of our corporate structure, we are subject to risks due to uncertainty of the interpretation and the application of the PRC laws and regulations, including but not limited to limitation on foreign ownership of internet technology companies, and regulatory review of oversea listing of PRC companies through a special purpose vehicle, and the validity and enforcement of the VIE Agreements because they have not been tested in a court of law.

Each of the VIE Agreements is described in detail below:

Exclusive Business Cooperation Agreement

On August 18, 2019, WFOE and Aokai Fa executed the exclusive business cooperation agreement pursuant to which WFOE has agreed to provide Aokai Fa with technical support, consulting and other services. The parties agree that during the term of this agreement, where necessary, Aokai Fa may enter into further service agreements with WFOE or any other party designated by WFOE, which shall provide the specific contents, manner, personnel, and fees for the specific services. Aokai Fa has agreed to pay a monthly service fee to WFOE. The service fee for each month consists of a management fee and a fee for services provided, which is mutually determined by the parties based on: (i) complexity and difficulty of the services provided by WFOE; (ii) title of and time consumed by employees of WFOE providing the services; (iii) contents and value of the services provided by WFOE; (iv) market price of the same type of services; and (v) operational conditions of the Aokai Fa. In addition, if WFOE transfers technology to Aokai Fa or develops software or other technology as requested by Aokai Fa or leases equipment or properties to Aokai Fa, the technology transfer price, development fees or rent shall be determined by the parties based on the actual situation on a case by case basis.

On April 8, 2022, WFOE and Aokai Fa executed a supplementary agreement to the exclusive business cooperation agreement (“supplementary VIE agreement”), which amended the “services fee” to be 100% of the VIE’s net income, which is the Aokai Fa’s before corporate income tax, being the monthly revenues after deduction of operating costs, expenses and other taxes. The service fee shall be due and payable on a monthly basis, within 30 days after the end of each month.

If Aokai Fa materially breaches any term of this agreement or the supplementary agreement, WFOE has a right to terminate this agreement and the supplementary agreement, and/or require Aokai Fa to indemnify it for all damages. Unless otherwise required by applicable laws, Aokai Fa does not have any right to terminate the agreement or the supplementary agreement. The agreement and the supplementary agreement became effective upon execution by the parties. Unless terminated in accordance with the terms of this agreement and the supplementary agreement, the agreement and the supplementary agreement remain in full force and effect.

Exclusive Option Agreement

On May 25, 2019, the shareholders of Aokai Fa, Aokai Fa and WFOE executed the Exclusive Option Agreement pursuant to which the shareholders of Aokai Fa irrevocably granted WFOE or its designee an exclusive purchase option to acquire, at any time, in whole or in part Aokai Fa’s equity interest held by each shareholder of Aokai Fa, or any portion thereof, to the extent permitted by the PRC law. The purchase price for the shareholders’ equity interests in Aokai Fa is RMB 108,687,728, unless PRC Law requires a minimum price that is higher at the time of the exercise of the option.

The shareholders of Aokai Fa and Aokai Fa further agree that, without obtaining prior written consent of WFOE, they may not (1) supplement, change or amend the articles of association of Aokai Fa, increase or decrease its registered capital, or change its structure of registered capital in other manner; (2) sell, transfer, mortgage or dispose of in any manner any material assets of Aokai Fa or legal or any other beneficial interest in the material business or revenues of Aokai Fa of more than RMB 10,000,000, or allow the encumbrance thereon of any security interest; (3) incur, inherit, guarantee or suffer the existence of any debt, except for payables incurred in the ordinary course of business other than through loans, or cause Aokai Fa to provide any person with any loan or credit; (4) cause Aokai Fa to execute any major contract with a price greater than RMB 500,000, except for the contracts in the ordinary course of business; (5) cause or permit Aokai Fa to merge, consolidate with, acquire or invest in any person; (6) in any manner distribute dividends to its shareholders, provided that upon WFOE’s written request, Aokai Fa shall immediately distribute all distributable profits to its shareholders; (7) engage in any business in competition with WFOE or its affiliates; or (8) be dissolved or liquated without prior written consent by WFOE.

The shareholders of Aokai Fa have agreed that, without obtaining the prior written consent of WFOE, among other things, (1) they may not sell, transfer, mortgage or dispose of, in any other manner, any legal or beneficial interest in the equity interests in Aokai Fa held by them, or allow the encumbrance thereon, except for the interest placed in accordance with the shareholders’ Equity Interest Pledge Agreement and their Powers of Attorney, (2) they shall cause the shareholders and/or directors (or the executive director) of Aokai Fa not to approve any sale, transfer, mortgage or disposition in any other manner of any legal or beneficial interest in the equity interests in Aokai Fa held by them as the shareholders, or allow the encumbrance thereon of any security interest, except for the interest placed in accordance with shareholders’ Equity Interest Pledge Agreement and the shareholders’ Powers of Attorney, and (3) they shall cause the shareholders and/or directors (or the executive director) of Aokai Fa not to approve the merger or consolidation with any person, or the acquisition of or investment in any person.

The shareholders of Aokai Fa shall (1) cause the shareholders’ and/or the directors (or the executive director) of Aokai Fa to vote their approval of the transfer of the optioned interests as set forth in this agreement and to take any and all other actions that may be requested by WFOE; (2) appoint any designee of WFOE as the director or the executive director of Aokai Fa, at the request of WFOE; (3) waive any right of first of refusal with respect to transferring of equity interest, and give consent to execution by each other shareholder of Aokai Fa with WFOE any agreements similar to the contractual arrangements and undertakes not to take any action in conflict with such agreements; and (4) promptly assign any profit, interest, dividend or proceeds of liquidation to WFOE or any other person designated by WFOE to the extent permitted under the applicable PRC laws;

The agreement became effective upon execution by the parties, and remains effective until all equity interests held by the shareholders of Aokai Fa have been transferred or assigned to WFOE and/or any other person designated by WFOE in accordance with the agreement.

Equity Interest Pledge Agreement

On May 25, 2019, the shareholders of Aokai Fa, Aokai Fa and WFOE executed the Equity Interest Pledge Agreement, pursuant to which the shareholders of Aokai Fa have agreed that without the prior written consent of WFOE, the shareholders of Aokai Fa may not directly or indirectly assign, sell, donate, pledge, encumber or otherwise dispose of, any interest in the equity interest of Aokai Fa which they hold. Pursuant to the terms of the agreement, in the event that either Aokai Fa or its shareholders are in breach of their obligations under the Exclusive Business Cooperation Agreement, Exclusive Option Agreement and/or the Powers of Attorney (the “Transaction Documents”) and/or the Equity Interest Pledge Agreement, then WFOE has a right to request the shareholders of Aokai Fa to transfer all or part of the equity interest they hold to any other person designated by WFOE at a minimum price allowed by the applicable PRC laws and regulations.

Upon the fulfillment of all obligations under the Transaction Documents, this agreement will be deemed completed and terminated.

Powers of Attorney

On May 25, 2019, each shareholder of Aokai Fa has executed an irrevocable power of attorney to appoint WFOE the or the authorized personnel of WFOE as its attorney-in-fact to exercise all of its rights as an equity owner of Aokai Fa, including (1) the right to attend shareholders and employees’ meetings of Aokai Fa; (2) the voting rights and any other rights that a shareholder of Aokai Fa is entitled to under the laws of China and Aokai Fa’s Articles of Association, including but not limited to the right to sell, transfer, pledge or dispose of shareholder’s equity interest in part or in whole; and (3) the designation and appointment of a legal representative, directors, supervisors, a chief executive officer and other senior management members of Aokai Fa.

Spousal Consent Letters

The spouse of each married shareholder of Aokai Fa executed a Spousal Consent Letter on May 25, 2019. Pursuant to the Spousal Consent Letter, the shareholder’s spouse has agreed to the execution of the Exclusive Option Agreement, Equity Interest Pledge Agreement, Power of Attorney and the disposal of the equity interests held by the shareholder in Aokai Fa pursuant to those agreements. The spouse of the shareholder agreed that he/she shall not assert any interests in such equity interests in Aokai Fa held by the shareholder, and if he/she obtains any such equity interests, he/she shall be bound by the Exclusive Option Agreement, Equity Interest Pledge Agreement, Power of Attorney and the Exclusive Business Cooperation Agreement.

Industry Background & Market Opportunities

Camellia Oil Industry Background

Camellia Oil, also known as tea seed oil or camellia seed oil, is a pure natural high-grade vegetable cooking oil. It is extracted from the seeds of wild camellia oleifera which originates from China. Camellia oil has a clear taste and is rich in nutrients, containing 85.2% to 95.8% of unsaturated fatty acids, making it the most nutritious oils for human consumption. In addition, Camellia Oil also has physiologically active substances such as tea polyphenols and vitamin E, which promotes oxygen enrichment, resists oxidation, provides anti-fatigue effects, improves human immunity, and enhances the gastrointestinal tract.

The main components of Camellia Oil are oleic acid and linoleic acid-based unsaturated fatty acids. According to a scientific thesis written by scholars of the faculty of Life Science and Biotechnology at Ningbo University and Hangzhou Project & Research Institute of Electromenchanical in Light Industry, Camellia Oil effectively regulates the human heart, brain blood vessels, digestion, reproduction, neuroendocrine and immune systems. Long-term consumption of Camellia Oil brings obvious results against diseases such as hypertension, cardiovascular and cerebrovascular diseases, and obesity. Compared to other edible oils, Camellia Oil holds the following characteristics:

Camellia Oil is highly favored by Chinese consumers due to its flavor, high quality and rich nutrition. Prior to 2004, the annual consumption of Camellia Oil in China was less than 200,000 tons. In 2013, that number exceeded 300,000 tons.

Prior to 2004, Camellia Oil consumption in China was less than 200,000 tons; from 2005 to 2011, the number was between 200,000 and 300,000 tons; It was in year 2013 that China’s Camellia Oil consumption went beyond 300,000 tons. At present, China’s annual output of Camellia Oil is 450,000 tons, and the annual per capita possession is only 0.3 kilograms, far lower than 20 kilograms of olive oil annual per capita possession in other developed countries. The current consumption structure of edible oil is unbalanced as the consumption of olive oil in developed countries generally accounts for more than 40% of the total consumption of vegetable oil.⁷ Since the Camellia Oil has similar features with olive oil, the future market growth and development potential of Camellia Oil is huge.

The Camellia Oil extraction enterprises in China can be categorized into the three followings: (1) small-scale agro-enterprises, which provide extraction services to Camellia oleifera farmers with very limited production capacity; (2) middle-scale crude oil production enterprises, which purchase Camellia oleifera seeds from farmers and produce crude Camellia Oil for sale to refineries; (3) industry-scale refineries, which have the ability to produce and refine crude Camellia Oil (some refineries purchase crude oil in lieu of producing by themselves). The process of extracting the oil can be divided into three types: cold pressing or cold extraction, hot pressing or hot extraction, and chemical extraction.

More than 90% of the global production of Camellia Oil comes from China. Camellia oleifera usually grows in unpolluted alpine and hilly areas in subtropical humid climate regions of southern China, such as Anhui province, Hunan province, Jiangxi province, and Guangxi province.

According to the National Camellia Oil Industry Development Plan (2009-2020) issued in 2009 by National Development and Reform Commission (“NDRC”), the Ministry of Finance (“MOF”), and the National Forestry and Grassland Administration, as of 2009, there are 659 Camellia Oil extraction enterprises, with 178 of which have annual production capacity over 500 ton and approximate 200 of which have refining ability. In 2010, the refined Camellia Oil production capacity was approximately seventy thousand tons per year, which composes one fourth of the total Camellia Oil production capacity in China. Most extraction enterprises are small scale agro-enterprises, and the market lack sufficient number of enterprises that have advanced producing techniques and large-scale producing capacity.